Completion Challenge Before Builders in NCR

Project delays are one of the most alarming issues historically dogging the Indian real estate sector. The dearth of effective planning and execution of construction activities, escalating construction costs, approval delays, diversion of allocated funds to other projects and tepid sales are some of the predominant factors resulting in project delays. The homebuyer is, of course, at the losing end.


To put it in numbers, during 2017, out of the total 5.8 lakh residential units slated to be completed across the top 7 cities in India, only 1.5 lakh units were actually delivered until December 2017. This indicates that around 4.3 lakh units actually missed their stipulated completion deadlines.

The National Capital Region (NCR), one of the country’s largest residential markets, was seriously wounded by sudden policy changes, structural reforms - and the dubious practices of unscrupulous developers. As a result, it topped the list of cities with maximum project delays. Around 1.5 lakh units in NCR missed the 2017 deadline. The story in Mumbai Metropolitan Region (MMR) was no different with nearly 1.1 lakh units missing the said deadline.


The Myths Around GST In Real Estate

The Goods and Services Tax (GST)—India’s biggest tax reform post-independence—was implemented on 1 July 2017. This new tax regime seeks to transform the Indian economy with its ‘One Nation, One Market, One Tax’ principle by subsuming a host of indirect taxes charged at varied rates by the Centre and states, therefore bringing uniformity in taxation across the country.

Though its primary objective was to simplify the complex tax structure on the supply of goods and services, the reform created quite a stir due to its complex nature, due to which many myths about GST started making the rounds. Let us debunk some of these myths.

MYTH: GST has equal impact on all residential properties

FACT: The impact of GST on property is mainly dependent on segmental classification of projects. The extent of the impact on residential properties predominantly depends on the phase of construction, the location as well as the type of project. For example, impact will be observed more in case of new launches as compared to near completion projects. Similarly, suburban projects will be more impacted as compared to city-centre projects and affordable or value housing will see larger impact as compared to luxury housing. This is on account of different proportion of land cost in project cost (land cost exempted from GST), different GST applicable to different materials, amount spent split in pre-GST time and post-GST time and on account of lower GST for affordable housing projects.

Thus there is no uniform or single amount by which residential properties are impacted due to GST system.

MYTH: Everything is clear about GST in real estate

FACT: There still persist certain grey areas which are yet to be evaluated by tax experts to stand the ‘test of law’. Some of them are:

  • Taxability of club house charges, electricity and water deposits, preferential location charges, car park charges and eligibility of one-third land deduction abatement on such charges. The authorities could demand a full GST of 18% on these charges, given that the one-third deduction may not be extended to these amounts
  •  Taxability of land value where the same exceeds one-third of the total sale price and the developer has contracted separate agreements for the supply of land and construction portion;
  • Ineligibility of refund to developers under the inverted duty structure considering inputs are procured at a higher rate of tax, whereas output is charged at a lower tax rate.
  • Adopting different tax computation methods for different projects/phases of the same project.

MYTH: GST means price benefit for all the buyers

FACT: There is a possibility of the market perceiving GST to be a ‘by default’ agent for a price drop for all projects. However, the actual factor for such price reduction is based passing of cost savings achieved and this is just one of the several factors influence the pricing and thus cannot be by default expected as a price benefit agent.

For example, customers opting for affordable housing projects are expected to reap the maximum benefits whereas such benefits are expected to reduce as the segment moves towards luxury and ultra-luxury sectors. Similarly, in projects where the land cost is low, the savings can be significant and closer to the estimated savings. However, where the land cost is high, the savings on account of GST may not be significant

MYTH: - Post GST taxation is lower than Pre-GST taxation for buyers

FACT: The effective rate of tax has not seen too much deviation. The earlier tax rate was ranging from 10–15%. Now the tax rate has been pegged at 18%, with an abatement of one-third being provided towards land value, thereby reducing the effective tax rate to 12% of the entire agreement value under GST. So while it may seem that GST should result in savings of at least 3–4%; the ground-level reality is different and depending on which state the buyer buy property in, there could be positive or negative impact of GST as compared to pre-GST taxation.

MYTH: Developers do not want to pass the benefit to buyers

FACT: Quite the contrary, developers do want to pass the benefit to end users as this would not only attract more buyers, but also build trust for their brand. However, the benefit not clear yet. In addition, the GST law requires businesses to mandatorily pass on the benefit derived from any reduction in the rate of tax or benefit from the input tax credit to customers. However, with regard to the real estate sector the industry is grappling to determine the actual benefit on account of GST and there is lack of clarity on how the benefit, if at all any has to be computed at all any, has to be computed (the period to be considered, the factors to be considered, etc.). This is because, in case of real estate, the product is unique. Unlike an FMCG product, an apartment does not have an ‘MRP’, or a ‘Best before’ date. Thus as the final price of a project is an estimate for what the markets will be like for the next 4-5 years, it is difficult for a developer to allocate benefits of input tax credit today over various projects and build those into a future price benefit for the customer. One of the biggest challenges is the allocation of input tax credit to under construction projects, where part of it has been completed before GST came to light.

To summarize, the GST law still has to mature and compliance related processes need to be refined further. It is important that the government ensure clarifications to ensure major concerns, which need clarity once and for all are addressed.


(The writer is CEO & Country Head, JLL India)


The Rise and Rise of Indian Malls

Rapid urbanization and digitization, increasing disposable incomes and lifestyle changes of the middle-class are leading to a major revolution in the Indian retail sector, which is pegged to grow by 60% to reach US$ 1.1 trillion by 2020. The Government has clearly hit the bullseye by easing the FDI norms in the retail sector over the past few years.

 Reacting to the immense opportunities and diminishing entry barriers into the Indian retail scene, overseas retailers are now expanding exuberantly. And it’s not just the metros they’re targeting - even tier 2 cities like Ahmedabad, Chandigarh, Lucknow and Jaipur, to name a few, are opening up for organized retail in a big way. Malls are literally mushrooming across the Indian subcontinent.


BMC Move On Commercial Real Estate To Create Jobs

Last week the BMC announced that they may consider lowering premium for extra FSI. This comes as a very positive move for the Real estate market in Mumbai, where the cost of getting a permit is very high as compared to other parts of India.

When the new DP was announced for Mumbai, developers rejoiced on account of the additional FSI that was allocated to them. A range of additional FSI between 30% to 80% of the ready reckoner rate was proposed under various policies, such as 30% under the Fintech policy, 80% under commercial linked to roadways, and 60% as fungible that is applicable over and above. This was a welcome news for the commercial real estate sector as the new FSI norms was expected to create significant commercial spaces.


Delhi To Overtake Tokyo By 2030 As The Largest Populated City

New Delhi: As per an UN report, Delhi will overtake Tokyo as the world’s largest urban agglomeration by 2030 and have a population of 43.3 million by 2035. The same report also predicts that over half of India’s population will live in urban areas by 2050.

In 2015, the Delhi urban agglomeration — which includes the capital and its contiguous satellite towns — had an estimated population of 25.9 million but that will grow by 67.6% over two decades to cross 43 mn according to World Urbanisation Prospects, a report by the UN’s population division. Tokyo will be a fairly second with 36 mn with its population likely to decline a little from 37.3 mn in 2015.