Real Estate Sector Archives

GST and real estate: Govt needs to address grey areas, disputes and litigations; take feedback from realtors, say experts

November 17, 2017 admin Comments 0 Comment

Much has been discussed, argued and debated on demonetisation and the Goods and Services Tax (GST) implementation at various forums including election campaigns. Opposition parties slammed both the moves of Prime Minister Narendra Modi, though the latter managed to hit headlines on Thursday again after the Pew Research Centre’s survey announced him as ‘very popular’.

Without taking names or giving political colour, a panel discussion on ‘Dialogue on demonetisation, GST and the built environment industry’ organised jointly by RICS School of Built Environment, Amity University and National Institute of Urban Affairs (NIUA) on Thursday evening (16 November) in New Delhi, attempted a threadbare analysis of the impact of demonetisation and GST on the real estate sector.

In his inaugural presentation, noted economist Arun Kumar, Malcom S Adiseshiah, Chair professor, Institute of Social Sciences pointed out that the present form of GST was not ‘full GST’ as it kept real estate, alcohol, electricity and petroleum out of its ambit. “Now, if tax to GDP ratio rises, it’ll give rise to inflation. As a result, demand will fall and the rate of growth (will) decrease, which is contrary to what GST promised. The small and unorganised sector has been ignored and this sector can’t deal with GST due to its complexities. While demonetisation has put the economy on the downslide, the GST implementation has aggravated the condition. The poor have been marginalised in the process. Demonetisation and GST are the two big shocks,” he remarked.

On the possible impact of demonetisation on large real estate projects, Prof Kumar said demonetisation had resulted in decline of growth rate and GDP, and rise in deficit. “As the government won’t like fiscal deficit to go up, the demand in the sector will go down.”

Responding on a positive note, Arun Gupta, partner, SARC Associates said, “Demonetisation to some extent has led to an increase in tax compliance at present.” However, he mentioned, “GST in theory is a good system, but the way it was promised and projected during implementation, the government lost its way. There is a big lag between the plan and the outcome.”

Is demonetisation just a blip or has it had a much deeper impact on the economy? In response, Prashant Agarwal, partner (Indirect Taxes) at Pricewaterhouse Coopers said, “It was a shock therapy. Even after one year, we fail to know the significance of demonetisation or even implementation of GST. If we talk about these two actions or reforms, while PM Modi gained a Robin Hood image, the economists including former PM Manmohan Singh mentioned it as ‘shocking impact’. ”

Jagan Shah, director, NIUA observed, “Lack of implementation of policy interventions has impacted the sector. I don’t believe it’s a blip per se; but it’s a sign for a paradigm shift.”

Arun Kumar said that theoretically demonetisation won’t tackle black economy. “Demonetisation has hit investment and output. Credit off-take has declined. These are long-term effects. Investment can revive, once capacity utilisation picks up. Both public and private sectors have to boost investment, but it’s a Catch 22 situation.”

Gaurav Gupta, director, SG Estates Limited observed that after two decades people might not remember demonetisation, but it temporarily sucked up cash from the system. The move came as a shock and its biggest impact was on the unorganised sector. Probably, demonetisation wasn’t required, especially when government was implementing the GST.

Summing up the first round, panel moderator and associate dean and director, RICS School of Built Environment, Amity University, Sunil Agarwal said, “It’s not a blip as in the long-term people would remember the impact of demonetisation.”

GST- PANEL-DEMO

Has GST adversely impacted the real estate sector? Panellists unanmously opined that while the intention of GST was good, its implementation and rates led to more confusion. They suggested that the government needed to address the grey areas, disputes and litigations bothering the real estate sector by taking feedback from the realtors.

The government wanted the entire real estate sector under GST, but it’s half-done, which has been due to the states, said Prashant Agrawal, adding, “There’s an issue of distrust between the Centre and the states as far as revenue sharing is concerned. There are lot of legal issues in real estate sector. The players of this sector need to have a clear perspective and discuss their problems with the government on taxation. However, realising the problem, the government has brought down GST rates.”

In response, Gaurav Gupta said, “Real estate sector’s contribution to GDP is 9 percent and it is the second largest employment generator. The government has brought in lots of regulations, but there is an urgent need to improve the investment climate in this sector. Practical problems need to be resolved.”

Explaining the issue, Arun Kumar said, “There’s a need to simplify the process and bring real estate, liquor and petro fully under GST. This will help the sector. But there’s pressure from the states to keep them out and the Centre couldn’t handle it.”

While, the panellists delved into the pros and cons of note ban and GST, there were voices from amongst the audience who questioned the credibility of real estate players. Many shared the view that the decline in growth in the real estate sector started in 2012 — much before demonetisation and GST implementation —because of low credibility.

“Implementation of GST hasn’t contributed much to the slowdown in the real estate sector. Before GST, there was service tax. In fact, barring a few developers, the credibility of a majority has been questionable. They defaulted on the promises they made to their customers. Even banks refused extending credits. Despite taking money from home-buyers, the builders failed to deliver flats. It badly impacted the sector. The need of the hour is to regain confidence of the government, customers and financial institutions,” remarked Captain Vipul Choudhary, a retired army official and director, Olive Green Realty — a real estate consultancy firm.

Former HUDCO CMD, PS Rana questioned why land had been made unaffordable for the masses. “In any project, land cost is the real culprit. For example, a developer buys land at Rs 1 crore from a farmer, but by the time he begins construction, the price shoots up to Rs 10 crore. This makes entire project costlier.”

Moderator Sunil Agarwal said, “The demand in real estate sector is there but it’s in segments. Now, a lot of corporate houses have entered, making the sector more organised. It’s giving credibility to the sector as well.”

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Source :  First Post

GST News: Real estate firms gear up to pass on tax benefits to home buyers

July 5, 2017 admin Comments 0 Comment

Real estate firms are gearing up to pass on tax benefits to homebuyers under the goods and services tax (GST) regime, which could lead to marginal changes in property prices. Depending on the stage of construction and location, home prices may either see a correction of up to 3% or inch up a bit from current levels, say property advisers and developers.

However, prices of ready-to-move-in apartments with completion certificates would remain steady as these properties are out of the GST ambit. Any price change in the segment will depend purely on demand and supply, say sector experts.

On 1 July, Mumbai-based property developer Oberoi Realty Ltd launched a marketing campaign called “Zero GST Impact”, cashing in on the uncertainty over how the new tax rate may affect property prices. The company kept the earlier tax rate for the first 100 bookings in six of its under construction projects following the GST rollout.

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Oberoi Realty managing director Vikas Oberoi clarified that buying homes would not become more expensive after the application of GST as the company plans to pass on tax benefits to both existing and new customers.

Under the new tax structure, buying under-construction properties will attract a net effective rate of 12% as against the earlier rate of around 5.5% (including value-added tax and service tax). However, due to the input credit benefits that most builders will get on the key raw materials they buy, the base price may go down.

“We have done our math and we clearly believe that GST is not going to increase cost to customers. If we read the finer details, the input credit takes care of the GST that is required to be paid. If everyone plays fair, home prices will mostly be cost neutral or may go up just about 2-3% in (a) few projects,” Oberoi said.

Others also believe that prices of ongoing projects may see a slight correction of about 1-3% post deduction of input credits, depending on location and stage of construction.

“For new projects with 100% input credit passed to buyer and land cost being 50% of project cost, we expect property price to fall by around 1% in western and northern markets and around 3% in southern markets,” said a 30 June report by Edelweiss Securities Ltd, a brokerage firm.

Om Ahuja, chief executive (residential) of Bengaluru-based Brigade Enterprises Ltd, said homebuyers could save about 3-4% post GST, depending on savings of builders on key components such as steel and cement.

The company is also currently running a campaign where it has cut prices across 22 ongoing residential projects in Bengaluru, Chennai and Hyderabad.

“For our new bookings, we are currently working on how we can pass on the benefits to consumers. Wherever there is visibility of some saving, we have already passed on. We are currently running an offer where we have slashed prices across few projects,” Ahuja said. However, he added that challenges remain on how to rework contracts with existing customers who have paid partly for under-construction projects.

On 15 June, the Central Board of Excise and Customs (CBEC) asked all builders to pass “on lower tax burden under GST regime to buyers of property by way of reduced prices/instalments”.

“The impact on prices will differ for different projects and how much credit a builder can take or not take. Suppose if 90% construction has happened and the builders have already purchased the material, he may not get the credit on that,” said Abhishek Jain, partner, Ernst and Young, a consultancy.

According to Pankaj Kapoor, managing director of Liases Foras, a real estate advisory firm, luxury housing prices will rise while affordable and low-cost housing will not see any impact. “Luxury housing has a bigger component of land price. Input credit will not be sufficient enough to bring down the price,” said Kapoor.

DLF Ltd, India’s largest real estate firm by market value, is also planning to pass on benefits of the input credits it will get on its under-construction projects. However, any price change will be determined by the market rather than GST, said Rajeev Talwar, DLF’s chief executive officer.

“Every builder has to pass on the benefit that they get through input credits. But we need to wait for another six months to see how the market moves based on these reforms to see a price change,” he added.

Santosh Agarwal, chief financial officer of Gurugram-based Alpha Corp Development Pvt. Ltd, said customers who buy apartments in projects which are less than 60% completed will get more benefit as against those that are near completion due to the higher input credit which builders may get in early stages of construction.

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Source: LiveMint

Impact of GST on Real Estate

April 20, 2017 admin Comments 0 Comment

The impact of GST on real estate will depend upon the abatement allowed on agreement value, says CRISIL survey.

From the point of view of consumers, the impact of GST on the real estate sector will hinge on its effective implementation rate.

In the residential segment, completed properties do not attract service tax and so will have no impact of the implementation of GST.

In case of under construction properties, consumers pay the following:

• Stamp duty and registration charges (which are state specific and which will not fall under the GST)
• Service taxes including Swachh Bharat Cess and Krishi Kalyan Cess totally adding up to 15% (since service tax is applicable on 25% of the agreement value, effective outgo translates to 3.75%. However in case of properties costing above Rs 1 crore or where the carpet area of the residential unit exceeds 2,000 sq ft, service tax will be applicable on 30% of the agreement value, translating to an effective outgo of 4.5%)
• VAT – state-specific charge, for instance Maharashtra charges 1% VAT on agreement value, while Karnataka charges 5.5%, Tamil Nadu and West Bengal do not charge VAT – VAT is expected to be subsumed under GST

Thus, if the current service tax + VAT outgo is higher than the effective GST rate, it will provide some relief to the consumer. In case the current outgo is lower than the effective GST rate, it will further burden the residential real estate sector which is already facing headwinds, especially with regards to demand. A crucial clarification required at the moment, is the treatment of GST in lieu of service tax, namely whether applicable at 25% or at a rate different from 25%. This will have a direct bearing on its overall impact.

Leasing of residential properties does not attract service tax and so will have no impact of the implementation of GST.

On the other hand, leasing of commercial properties attracts service tax and will be impacted by GST. Again, the impact will depend on the effective rate of GST.

From the developer’s point of view, implementation of GST will results in lower construction costs. Overall tax incidence on inputs like cement and steel is expected to decline, thereby leading to improved margins for the developer. However, whether these benefits are passed on to the consumer remains to be seen. Additionally, further clarity is required on the availability of input tax credit with respect to works contract which results in construction of immovable property as it will determine its impact on the sector.

From the consumers point of view, the impact of GST on the real estate sector will hinge on its effective implementation rate.

In the residential segment, completed properties do not attract service tax and so will have no impact of the implementation of GST.

GST rates may raise property costs, say real estate developers

April 13, 2017 admin Comments 0 Comment

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Real estate developers are concerned that the implementation of the goods and services tax (GST) may raise the overall cost of properties if the sector comes under the expected 18% tax slab and stamp duty is not subsumed in the new tax structure.

The GST Bill was cleared in Parliament’s budget session, paving the way for roll-out of the indirect tax regime on 1 July. According to the legislation, land leasing, renting of commercial properties and purchase of under-construction housing projects will attract GST.

The GST Council on 31 March approved nine sets of rules for implementation of the tax. It will hold its next meeting on 18-19 May to discuss the rates on individual items. Under the new indirect tax regime, there will be four tax slabs—5%, 12%, 18% and 28%.

It is speculated that for the real estate sector, the GST rate may be fixed at 18%. While VAT (value-added tax) and service tax that customers pay at the time of buying a property has been subsumed, stamp duty has been kept out of its purview—a move that most developers are worried may end up being a burden to the sector, which is already under pressure after three years of slow sales.

“As an industry norm, all taxes are subsumed under GST, but in the case of real estate, what they (government) are saying is stamp duty and other local body taxes will continue as it is. Taxation is going to be beyond reasonable,” said Niranjan Hiranandani, co-founder and managing director of Mumbai-based Hiranandani Group, who is also the president of real estate lobby group National Real Estate Development Council (Naredco).

Both Naredco and Confederation of Real Estate Developers’ Associations of India (Credai), another builders’ group, have recommended to the finance minister that the GST rate should not be kept higher than 12% for the real estate sector.

“The GST rate on the consideration excluding value of land should not be more than 12% covering both CGST (central GST) and SGST (state GST) after providing credit for all the inputs… Anything above this rate would only result in continued deceleration of this industry and also compromise GDP (gross domestic product) growth,” Credai said in a presentation to the government in February.

Prakash Challa, chairman (finance and taxation committee), Credai, said the group had sought an appointment with the finance minister to discuss the GST rate. According to him, the current net tax should be retained after the introduction of GST as well.

“There is a thought process right from the beginning that stamp duty should be subsumed along with GST and we have one common rate. End consumer is paying stamp duty, which is a state subject. So we are governed under the central tax and also under the state tax,” said Challa, who is also the managing director of Chennai-based real estate and infrastructure developer SSPDL Group.

Home buyers now pay a cumulative tax of around 11-12% including both service tax and VAT, depending on the rules in each state. Irfan Razack, chairman and managing director of Bengaluru-based Prestige Group, said that the stamp duty, which differs from state to state, should either be subsumed under GST or should be rationalized to about 2% from its current average rate of around 8%. He added that the new tax regime will benefit the sector in the long run and developers may be able to save as there will be no excise duty on various raw materials.

“If rate remains at 18%, it is high for an industry where the government is keen that investment should come in. I think it should be 12%, otherwise it will not bring down the prices, it may only go up,” said Nihal Kothari, executive director at law firm Khaitan and Co.

Source : http://www.livemint.com/Companies/HBf284pa32Y0AOByNkow2O/New-GST-rates-may-raise-property-costs-say-real-estate-deve.html

Benefits of GST to Real Estate Sector

February 22, 2017 admin Comments 0 Comment

GST could bring in transparency in the real estate sector, possibly reduce cost of home ownership, especially if GST rate is lower than current rates put together. It could also lead to lower compliance costs and input costs for builders. Getamber Anand, national president of industry body CREDAI says it could reduce harassment that is there due to multiple taxes today. But builders and consultants are concerned about a clause in the GST bill which says input tax credit shall not be available in respect of the “goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery.”

Real State Sector “This would mean multiple taxation on buyers as builder will pass on non-creditable tax to home buyers even as they pay GST on the consideration charged to them and then stamp duty for registration,” says Abhishek Jain, tax partner at EY India. According to back of the envelope calculations, home-buyers will end up paying around 20-22% in total tax compared to 14-16% if builder gets tax credit.

Here is what the industry has to say about the impact of GST on real estate:

Neeraj Bansal, Partner and Head, Real Estate and Construction sector, KPMG in India

The constitutional amendment bill paving way for introduction of Goods and Services Tax bill and rules in the parliament is a welcome step. The next step involve ratification of this amendment by majority states, post which GST bill will have to be cleared by both Central and State Governments. At an overall level the impact on the sector will hinge upon the effective GST tax rate post abatement allowed for the Land Value in property transactions.

Further, Real Estate industry has to deal with multiple tax authorities such as Service Tax and VAT and passage of GST Bill may lead to reduction in compliance bring in efficiency whereby the credit input for excise duty etc levied on materials like cement, steel etc. Also the impact of offset of GST credit on construction of building with GST paid on Rents or leases will have to be considered.

From consumer perspective, it is premature to say if GST will bring down property prices. We will have to wait for finer details especially with respect to applicable rate for real estate sector.
Lastly, the Government must consider providing a breather time to the sector to understand and prepare for GST. Global experiences suggest that there is a gap of about 1 year between introduction and implementation of GST, with recent example being Malaysia. Industry however needs to start preparing themselves for GST and organizations must undertake a detailed review of the IT systems, contracts with vendor, suppliers etc.

Abhishek Jain, Tax Partner, EY India

India is on the brink of GST and this is considered as a sign of freedom from multiple taxes currently levied on the real estate sector and the end of myriad litigation owing to ambiguity in the legal provisions. However, eligibility of credits and concessions still remain a cause of worry for the real estate sector. The Model GST Law restricts credit on goods and services acquired for construction of immovable property (other than plant and machinery). This clause is interpretative which may lead to litigation and result in denial of credits in certain situations

Anshuman Magazine, Chairman, CBRE – India and South East Asia

This bill has been long awaited by the industry. This is a major tax reform for our economy, which will transform India into a single market. Once implemented, it is likely to have a positive impact on the real estate sector, which has linkages with over 250 ancillary industries. Unified taxation will also infuse the much needed transparency into our taxation system. While the complete effects of this bill will take some time to be realized in some sectors, overall, it is expected to have a long lasting and progressive impact on the economy, enhancing the prevalent business sentiment in the country.

Anshul Jain, Managing Director, India, Cushman & Wakefield

The clearance of the Goods and services tax (GST) Bill in the Rajya Sabha is a laudable step that would remove cascading taxes and make India’s manufacturing sector more competitive. Being a destination-based, indirect tax aimed at bringing in more efficiency and rational taxes, GST could actually help to lower manufacturing / processing, logistics and distribution costs, which could further revitalize the manufacturing and associated sectors (warehousing and logistics) by making them more price competitive and boost the overall Indian economy. This would definitely boost the PM’s ‘Make in India’ initiative and create more employment. The warehousing and logistics sector, which is essential to raise the competitiveness of India’s manufacturing sector, would be especially benefited by the GST as it would bring about increased supply chain efficiencies. GST will ensure the abolition of various central, state and local taxes, enabling easier transfer of goods between states, which would give way to larger, centralized and advanced warehouses that would serve as hubs to service various states.