Reddy to ask Finance Ministry to Review Service Tax on Housing Sector

S Jaipal Reddy, the urban development ministry will ask the finance ministry to review the proposal to bring the housing sector under the service tax net from April 1, 2010. “We will approach the finance minister in the next few days and ask him to review his decision of bringing housing under the service tax net,” said Urban Development Minister S Jaipal Reddy. He was speaking at a conference on Indian Real Estate organised by Associated Chambers of Commerce and Industry of India (Assocham). Real estate players and various industry chambers are already lobbying the government to withdraw the service tax imposed on the housing sector (at 3.3 per cent, with abatement) , as it would discourage buyers.

“This is not the right time for service tax implementation as the government’s objective is to encourage people to own houses. We have to wait for another month or so to see if the finance ministry listens to our request,” said KP Singh, Chairman, DLF Group. Addressing issues faced by the real estate sector today, the Reddy said availability of land — which is a state subject — has become a major concern. “If we want India to cater to the issue of demand and gap in the housing sector, apart from the central government, it is the state government which should become the facilitator.”

He also said since land is very limited, the best way forward is to go for vertical development (building high-rise buildings) instead of the present approach of going horizontal. “In Delhi, we would allow vertical development of real estate dwellings in older areas and remaining sprawl of Delhi provided the Municipal Corporation and Delhi (MCD) assure availability of all basic amenities such as water, power, etc.” In this regard, Reddy said the Ministry of Urban Development would soon come out with a new relaxed Floor Area Ratio (FAR) regime without specifying any time frame for it.

Another pertinent point that has been a concern for real estate developers is the number of clearances one has to take to start a project. “Today, there are more than 50 agencies from where we have to take our clearances. We have to ensure that the best way forward is to have a single window system as it would not only save time, but also ensure transparency,” said Navin M Raheja, Managing Director, Raheja Developers Ltd. “It is very important to have a single window clearance system in real estate sector,” echoed Anil K. Agarwal, Past President, Assocham.

Singh feels if real estate and urban development has to reach a self-sustaining level in India, “we have to follow the way it has been done in the telecom and IT sector”. “We need to have a visionary like Sam Pitroda, who can think centuries ahead in the real estate and urban development sector to formulate policies. Today, we are concentrating on meeting shortages, when policies are being framed. This needs to change fast, as we have to take the aspirations of people when we build a nation.”

Tightened Monitory Policy and Newly Imposed Service Tax Set to Boost Property Prices

Further monetary tightening by the Reserve Bank of India (RBI) and imposition of service tax on under-developed housing complexes, as proposed in the Budget 2010-11, will lead to increase in property prices, according to real estate companies. India’s central bank last week hiked two major policy rates - the repo rate and reverse repo rate - by 25 basis points each. “The recent monetary tightening by the RBI was on expected lines, but further tightening will certainly lead to increase in property prices. Further rate hikes will impact affordability of home loans,” K.P. Singh, chairman of DLF, India’s leading real estate developer, said here Friday.

“The monetary policy should be such as it encourages this important sector of the society. The policies should encourage people to buy homes, particularly the middle class who wants to buy,” he added. In the budget, Finance Minister Pranab Mukherjee proposed to bring development of real estate complexes under the ambit of service tax. At this, Singh said this is not the right time to impose service tax as the industry has just started recovering.

According to Navin Raheja, managing director of Raheja Developers, if the RBI hikes the key policy rates further and the government decides to impose service tax on under-construction apartments, “it will pressurise the real estate companies to pass on the burden to consumers.” “The prices of properties will go northwards in that case.”

Premium localities sell well in Delhi, Chennai

A weekly snapshot of some big-ticket city deals.

Delhi-NCR
An apartment admeasuring 3,700 sqft located in Malcha Marg was leased out for a monthly rental value of Rs 3,75,000. The rental values in this location range from Rs 2,75,000 4,25,000 per month and this apartment is well within this range and has seen an appreciation of around 12% over the previous year due to restricted supply and high demand, especially from expatriate community.

Malcha Marg is one of the citys most sought-after residential locations, due to its strategic location being equidistant from the established CBD and new business district of Gurgaon. Additionally,the location, due to excellent town planning,offers congestionfree traffic movement.

Chennai
An independent house located at Rambagh, Besant Nagar, was taken on lease by a major corporate. The house admeasuring around 5,000 sqft is located in the prime residential boulevard of the city. The monthly rental of Rs 3,00,000 per month is moderately higher than the prevalent rental for high-end residential units in the area, due to the fact that its location is equidistant from the central business district (CBD) of the city as well as from other emerging business locations. The area, by virtue of being an established residential location, also has good social infrastructure, including retail and entertainment, education and healthcare.

Pune
A three-bedroom apartment unit, admeasuring 1,441 sqft was sold in Chinchwad for a total cost of Rs 49,05,871. The per square foot value of this property is around Rs 3,400 per sq ft, which is in line with the current prevalent values in the location. This mid-ranged apartment complex is located in the suburban location of Pune, which is currently going through a transformation, with many apartment complexes and gated development being planned in the location. The area has been gaining importance due to its convenient location and good access to various office and commercial locations across the city.

Hyderabad
A residential apartment admeasuring 3,170 sq ft was purchased in an under-construction project in Madhapur, Western Hyderabad,at a capital value of Rs 4,250 per sq ft. The property,being built by a prominent national developer,houses apartments ranging from 2,200 sqft to 4,375 sqft in the configuration of three and five-bedroom units. The apartment is located in Madhapur,a part of Mindspace IT Park and adjacent to Westin Mindspace Hotel,in the Western part of Hyderabad. This area has seen a growth in demand for residential units owing to the fact that it is a prominent office location. The location has, due to a steady increase in demand, seen a growth of around 6% in capital values over the past three months. Being located in close proximity to work places, this premium project is expected to garner significant interest from end users. Source: MagicBricks

Rules may be eased for service tax on realty

New Delhi:

Home buyers and property developers need not worry about being levied a service tax if they cannot procure a completion certificate from the local authority. The government could allow some independent authority to certify that the property is complete.

We are examining the issue and will see if a similar certificate from an outside agency can suffice, a finance ministry official said. Local authorities in some states do not issue completion certificates while others take many years to issue one.

The budget for 2010-11 has proposed to expand the scope of construction service to impose service tax on houses that are still being built.

The service tax will be levied only on 33% of the base price of a flat sold at construction stage. The effective service tax rate will work out to 3.3%,or 10% of 33%. Charges such as development fee, parking fee and premium location usually paid at the time of completion of construction will also be included in the base price.

The new rule will come into effect when Parliament approves the budget. Service tax will be levied only if payment is made before the completion of construction. Sale of fully completed houses will be exempt from the tax if a completion certificate from a local authority is provided.

The finance ministry may admit a certificate from an architect or builders association as a sufficient proof of completion.

Property developers had a mixed response to the proposal. Rajeev Talwar, managing director of DLF,t he country’s largest developer,felt the flexibility could be abused. However, an executive of Delhi-based developer Ansal API appreciated the governments decision. If the government takes the decision to outsource the whole process to an accredited agency, it will take the pressure off the realty firms.

Non-availability of completion certificate can increase the cost of a property as the 3.3% service tax would be significant, taking the tax element to nearly 10% after including the stamp duty.

India Industrial Sector: The Oasis of Economic Growth

The comprehensive report by Cushman & Wakefield explores the drivers for manufacturing growth in India, major markets, along with the opportunities and challenges facing the sector and its related real estate.

Important Findings:

Despite the current economic slowdown and a downsizing of India's expected GDP from 9% to approximately 7.1% as per the latest report by Central Statistical Organisation, India still remains one of the fastest growing economies in the world, ranking only second to China. The pace of this growth has largely revolved around India's service exports, backed by a robust and ever-increasing domestic consumption. Strong long term fundamentals like dynamic industrial environment, positive trend in outsourced manufacturing, increasing domestic demand and growth in exports have led the Indian economy to gain greater foothold in the world market over the past decade. Distinct advantages such as lower costs of production and superior output quality makes India a viable destination for outsourcing of manufacturing for several multi-national corporations (MNCs) across the world.

The manufacturing sector in India has witnessed a healthy average growth of approximately 9% in the last four years, with a record growth of 12.3% in 2006-07, primarily attributed to the global cost competitiveness – competitive capital and operative costs – that India has been able to provide vis-à-vis other locations. Further, the expanding domestic market together with the scaling up of operations by Indian companies, emergence of new industry segments and amendments in the regulatory framework such as incentives and subsidies, single-window clearances, investor friendly policies by several state governments, etc., have provided a further boost to the manufacturing scenario in India.An increased and sustained focus on the manufacturing sector is inevitable as well as advisable to achieve the projected average growth of 9% growth during the 11th Five Year Plan (2007-2012).

India has always enjoyed certain core advantages in the manufacturing sector, like rich mineral resources (iron ore, coal etc.), developed processing base, natural sea ports (Kandla, Kochi, Visakhapatnam, Paradeep, etc.) and abundant supply of cost-effective labour. Owing to these natural advantages, the manufacturing sector in India has spread across primary, secondary and tertiary processing segments.While the traditional manufacturing strongholds in India which have been steel, cement, heavy engineering, textiles, etc., the emerging industrial and related sectors include agro-based/food processing industries, pharmaceuticals, automobiles, logistics and warehousing, among others which are also gaining grounds in India.

Like the manufacturing industry on the whole, the Indian industrial real estate market has also delivered a strong performance in recent years, with average rental growth reaching around 25-30% in key markets. Supply shortages, however, in prime centres such as Mumbai and Delhi –

NCR have forced much of the manufacturing and logistics facilities to relocate to industrial parks in emerging tier-II and III locations. Read complete report at Cushman & Wakefield