GST Implications On Real Estate

– Anil Pharande, Chairman – Pharande Spaces

The Goods and Services Tax (GST), is a kind of a comprehensive indirect tax on sale, manufacture and consumption of different kinds of goods and services throughout India, with all other Central and State taxes intended to be subsumed under it. If this happens, it has far-reaching implications, including on real estate.

Taxation and real estate industry

If we take a look at the real estate industry in India today, we find that there have been major tax changes in the last few years. However, these taxes are not uniform all over the country – different practices and regulations are followed in different states in India. It was the 46th Amendment to the Constitution that brought massive changes towards taxation in the real estate sector. Later in the following years, special powers were given to the State Government for implementing Value-Added Tax (VAT) on some specific kinds of transactions.

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For land, property and other kinds of work contracts, different kinds of taxes are levied by the State Government and the Central Government. The transactions are mainly categorized in three parts – value of services, value of goods and materials and value of land. VAT is applied by the State Government on the goods portion, while value of services is taxed by the Central Government. However, other than stamp duty, there is no clear tax on the transactions regarding value of land. This situation leads to confusion and can result in dual taxation. Compliance and implementation of such taxes also get difficult.

The real estate industry has justifiably been feeling jittery with such confusing tax implantations and calculations. For one real estate transaction, multiple taxes need to be paid and this has a negative effect on the industry. The industry’s demand to bring GST on board is primarily to get a clear and transparent taxation rule for the real estate sector in India.

Expected GST effects on the real estate industry in India

The implementation of GST can prove to be a significant step in reforming indirect taxation in India. Chances of double taxation would be diminished, as some of the Central and State Government taxes will be amalgamated into one tax. This will ease the process of taxation considerably, making its enforcement and administration easier and simpler.

Talking about the real estate industry in this context, there are many things which have to be known and understood. In the current situation, a builder or a real estate developer incurs various kinds of expenses during the construction phase of a project. Different kinds of taxes are involved with these expenses, such as VAT/CST, customs duties, service tax, excise duty and so on. Majority of these taxes are expenses that are included in the system. This is because they are not creditable to the developer or to the end-customer. These non-creditable expenses lead to tax inefficiency, which is not desirable.

One positive impact that might result from GST is doing away of restrictions on credit utilization. This will definitely help in strengthening the credit chain in the entire system. If property developers and builders can properly manage this aspect, they will see some profit.

It is expected that the proposed GST structure will have a progressive and streamlined approach. The tax compliance rules should not have any serious impact on real estate builders and developers. In present conditions, builders running projects in different states have to comply with State-specific VAT laws, as well as other kinds of service taxes. Bringing in GST will therefore not bring any additional compliance burden on real estate builders in the country.

Issues regarding GST which affect real estate builders

There are a few clarifications that might be sought for GST taxation by real estate developers. For instance, the definition of a real estate developer varies from one state to another in India. The composition scheme varies according to State, in which the VAT rates come between 1-5%. In some States, there are differences between the terms real estate contractors and real estate developers. It has to be understood what will the GST implications are if the terms have different meanings.

There might be some confusion regarding GST implementations on residential property, as well. In the present scenario, there is no service tax applicable on renting immovable property, particularly for residential purposes. But service tax and VAT is implemented on the construction work. The question that arises is if the proposed GST will offer differential tax for residential properties.

As of now, it does not look like completed residential projects will be affected by GST, as buyers into completed projects have already paid statutory charges such as stamp duty and registration charges on the transaction. The segments to watch on the GST front are under-construction flats and rental flats, which are expected to come under the ambit of GST. GST will apply to the materials that a developer procures for building a residential project, so there is a direct correlation to the overall cost of construction.

Much depends on what rate of GST will finally be confirmed. If it is more than the existing cumulative taxes currently in force, it means that the overall cost to consumers of buying an under-construction flat will increase along with the added cost of stamp duty and registration. At the same time, developers have to keep an eye on costing, as price competitiveness is very important in the current real estate market scenario.

About The Author:

Anil PharandeAnil Pharande is Chairman of Pharande Spaces, a leading construction and development firm that develops township properties in Western Pune. Pharande Promoters & Builders, the flagship company of Pharande Spaces and an ISO 9001-2000 certified company, is a pioneer in the PCMC area offering a diverse range of real estate products catering especially to the 42 sectors of Pradhikaran. The luxury township Puneville at Punavale in West Pune is among the company’s latest premium offerings. Woodsville in Moshi is another highly successful PCMC-based township by Pharande Spaces which is now in its 3rd phase.

RBI Pitches For Higher Deposit Rates

Unfortunately, banks look set to raise lending rates by October, too.

A day after the Employees Provident Fund Organisation trustees raised the interest rates on PF deposits by 100 basis points to 9.5 per cent, the Reserve Bank of India on Thursday signalled banks to raise deposit rates to attract investors who have been shifting to other instruments.

In its first ever mid-quarter monetary policy review, RBI said if bank credit was not to become a constraint to growth, real rates needed to move in the direction of encouraging bank deposits.

“The policy actions taken over the past three quarters were partly driven by the need to end the prevalence of negative real interest rates,” it said.

Interest rates are said to turn negative when the interest rate on deposits are lower than the prevailing inflation rate, eroding the value of depositors’ money. While inflation has been hovering in double digits, deposit rates have been in the range of 6-7.75 per cent in this financial year. As a result, banks have seen deceleration of deposit growth, as savers have been shifting to other instruments for higher returns.

Hinting at upward rise in deposit rates, S S Mundra, executive director of Union Bank of India, said: “There is a clear signal in the mid-quarter review of policy on deposit rates. There is probably need to rethink. The extent of revision would differ from bank to bank.”

Deposit growth has not exceeded 15 per cent since the second half of April, against RBI’s projection of 18 per cent deposit growth for the current financial year. Banks have mobilised Rs 44,396 crore in this financial year since April, while the incremental lending went up by Rs 1,10,996 crore.

Deposits grew 14.4 per cent year-on-year as of August 27. During the fortnight ended August 27, deposits mobilised by banks had gone up by Rs 38,658 crore.

Following the central bank’s cues from the first-quarter monetary policy review on July 27, as many as 40 banks had raised interest rates on short-term and medium-term fixed deposits by as much as 150 basis points. The central bank had asked banks to beef deposit mobilisation in the first-quarter policy review to avoid any asset liability mismatch.

Since March, RBI had raised the repo rates by 125 basis points this year to six per cent and the reverse repo by 175 basis points to five per cent.

Lending rates to rise

As a result of tight liquidity, home and auto loans are expected to go up but not immediately. Bankers expect the credit demand to pick up on the back of good monsoon and strong IIP (index of industrial production) growth in July.

“There is upward bias on lending rates since we have increased our deposit rates. We will revise rates when we review our base rate in October. There is definite indication for it go up and (this) depends on cost of funds,” said Bank of Baroda’s executive director, R K Bakshi.

Banks will review their base rate for the first time in October. Subsequently, interest rates for the home, auto and commercial sectors will increase.

“Banks are at the onset of the busy season. The credit pick-up would also shape the interest rate trend,” added Mundra.

“Borrowing rates will go up for consumers as well as for developers. For the projects that are already priced high, the impact in terms of demand erosion will be higher. We don’t see much impact on low-ticket sizes such as Rs 25-50 lakh purchases,” said Shobhit Agarwal, joint managing director – capital markets, Jones Lang LaSalle India.

“Tight liquidity scenario is expected to prevail, which will further strengthen the policy transmission and is expected to result in banks increasing their lending and deposit rates,” said Ashwin Parekh, partner, Ernst and Young.

By increasing the repo and reverse repo rates, RBI had further reduced the liquidity adjustment facility rate corridor to 100 basis points. This is expected to reduce volatility in short-term interest rates.

Credit had grown by 19.4 per cent on a year-on-year basis at the end of August 27 as against RBI’s projection of 20 per cent for the financial year. Outstanding bank credit stood at Rs 3351396 crore at the end of the fortnight.

ADB Offers Rs 452 Crore Infrastructure Loan To PCMC

PUNE: The Asian Development Bank (ADB) has offered a loan of Rs 452 crore to the Pimpri-Chinchwad Municipal Corporation to fund several infrastructure projects in the twin towns.

The PCMC Infrastructure Company Ltd a special purpose vehicle created by the PCMC to execute these projects has told the ADB to give details of the terms and conditions for sanctioning the loan.

The PCMC plans to develop 12 bus rapid transit system (BRTS) routes which includes BRTS corridors. The PCIC will collect taxes, development charges and advertisement charges through BRTS corridors.

Municipal commissioner Ashish Sharma, a member of the PCIC board of directors, said, “The PCMC will develop 12 BRTS routes. We have completed development of two routes. The work on three routes, namely Nashik Phata- Wakad road, Kalewadi Phata Dehu Alandi road and Aundh – Ravet road is in progress. The PCMC has to develop other three routes which require funds. The department of economic affairs has approved non-sovereign lending by the ADB to the PCIC.”

Read the rest of this article here.

Pune Accountants Feel India May Not Be Ready For IFRS

Pune International Financial Reporting Standards will be mandatory for financial statements from April 2011. With the commencement of the next financial year, the Indian Accounting Standards are all set to go global by converging with the International Financial Reporting Standards (IFRS).

While it will enable Indian firms to access and understand the balance sheets of firms in the international markets, many chartered accountants (CA) in Pune feel that the country may not be ready for the transition.

According to the CAs, for an economy to make the transition, an enormous amount of training is required, not just for the CAs but for a vast group of people likely to be affected by the new accounting norms.

With the IFRS, the real estate sector will also see massive changes in accounting norms. While revenue recognition now takes place simultaneously with the construction of a project, with IFRS, it can be done only after an entire project is completed. Even mergers and acquisitions norms will undergo a sea change, said D’Souza.

G Ramaswamy, vice president, ICAI, said, “ICAI has 100-hour course running in six cities to train chartered accountants and a few short term courses in the form of workshops. We need a batch of 30 for a course. While Pune has already had two workshops, soon we may also have the course in the city.”

IFRS will be mandatory in India for financial statements from April 1, 2011 as per notifications by ICAI and Reserve Bank of India. The changes will be implemented in phases with the first phase including companies listed with BSE and NSE, companies whose shares or other securities are listed on a stock exchange outside India, companies, whether listed or not, having net worth of more than INR 1,000 crore.

Read the rest of this article here.

Pune Apartment Rental Vs Buying A Dream Home In Pradhikaran

You may think that buying your dream home in one of Pune’s latest integrated residential projects is beyond your capabilities. However, the fact is that it is easier than ever to get a home these days.

Pune Property

Most lending agencies and banks are now extremely liberal with providing home loans. In other words, even if you do not have a lot of actual cash to put down, you can still get the home of your dreams.

Many people think that buying a dream home is a tough process – that it calls for a large down payment. This is not always the case. Buying a home largely depends on your budget and also the location you choose.

If you consider the Pune properties for sale in the central parts of the city, you may certainly find them unaffordable. One look at the Pune property rates in 2010 will confirm that. However, if you consider buying a residential property in Pune’s adjoining PCMC, you get not only affordability but also a vastly superior deal.

Home loans for purchasing a dream home in one of these ultra-modern integrated residential projects are readily available. The down payment you make on this dream home purchase will go towards your overall purchase.

The more money you put down at the outset a home when you purchase, the lower your monthly payments (or EMIs – equated monthly instalments) will be.

If you don’t own a home right now, you probably live in a rental house or apartment.  This is certainly an option, but you are still paying money towards your housing that you could instead be putting towards a home of your own.

These days, renting a Pune flat will cost you just about as much as payments towards a home loan for a property in PCMC’s Pradhikaran would – and this, of course, makes no sense at all.

Maybe you should consider converting your monthly rental payments towards a small Pune apartment into monthly instalments towards your own spacious dream home in the Pimpri Chinchwad Municipal Corporation.

There is no shortage of banks who will offer very easy terms and interest rates on a home loan. In fact, the high competitiveness on the Pune home loan market gives you an edge – you can choose a loan plan that’s best for you.

There are various routes you can take to get a home loan. Most Pune developers have tie-ups with leading banks to make the process as pain-free and convenient as possible for their customers. Real estate agents can also be used to obtain a home loan – they can also be very useful when it comes to getting a great deal on the home, at prices that are right for you.

As long as you plan your budget and take things a step at a time, you’ll be closer than you think to actually owning the home of your dreams. You have the possibility of owning a fully-facilitated home at Pradhikaran, an area blessed with natural beauty and superior infrastructure.

It is time to reflect on just how much sense it makes to continue paying rent towards a far smaller home in a congested area of Pune.

Anil Pharande is President of CREDAI PCMC and Chairman of Pharande Spaces, a leading construction and development firm that develops township properties in the PCMC area of Pune, India.

You may reprint or quote this article with full credit to the author and a link back toPunePropertyBlog.com

Photo credit draconianrain

Real Estate Investment Tips: Not A Game Of Blind Man’s Bluff

Successful real estate investments are about a lot more than buying cheap property and selling it at a profit. Plunging headlong into property investment without a proper understanding of what you hope to achieve is not a good idea.

This is not to say that real estate investment is always a chancy proposition. Backed with the right information, you can definitely succeed. Here is a general blueprint for successful investment.

To begin with, be aware of the odds. There are chances of a loss if you don’t have an accurate idea of the state of the property market – and the changing values of your investment. Before you make a serious property investment, ensure that you have adequate insurance coverage.

Some successful property investors bulwark their investments by forming a nominal limited liability company for this, and you may wish to consider this option. Consult a knowledgeable lawyer who is savvy about the legal aspects of your local property market.

Kinds Of Property Investors

Property buyers fall into two broad categories, and we’ll discuss both of them briefly:

1. Actual Users

Such individuals seek to make a percentage of profit on properties that they are themselves currently occupying. This may take the form of partial rental or sale of a residence or the sharing of office or factory space with another business entity. It only makes sense if the part of the property being rented out or sold would otherwise remain idle and non-productive.

A more rewarding option is the outright sale of the property. This is often done for reasons other than investment – the seller may be seeking larger or more luxurious premises, in the process of career-based relocation, or unsatisfied with the property for other reasons. There may also be a need to downgrade on certain expenses such as maintenance costs. Since the sale of such a property is usually need-based, the options are reduced drastically.

The kind of profit one can make on the sale of a property in current use depends on the age and state of the property, its location and its inherent value on the market. A residence purchased five or ten years ago will have appreciated in value for the simple reason that property rates are constantly increasing.

The value of the property will be even higher if the location is one in current demand. Of course, the price a second-sale property will fetch will also depend on whether or not it is well maintained, the facilities it offers, the area it is located in, etc.

2. Exclusive Real Estate Investors

Such investors buy property for the exclusive purpose of making a profit from it, and do not utilize the estate personally. Residential property investment is usually in flats, bungalows, row houses, duplexes and township properties, while commercial property investments are focused on shops, offices, factory sheds, etc.

In the current scenario, commercial property investments are less lucrative than residential property investment, because the absorption rate for residential property is much higher. Property investments are also done in non-developed or partially developed land.

Pure investors have a better chance of making a profit in their dealings simply because their options are wider. There is also no immediacy or urgency involved, since the basic objective is timing the market for optimum profitability. Professional investors of this kind should keep certain guidelines in mind:

* Location is everything. Even if rates are steeper in a preferred area, go for it. It will pay rich dividends in the final analysis

* Choose to invest in properties under reputable banners. The very name of a famous builder makes a decided difference on the bottom line of the sales deed.

* It is always more profitable to invest in properties under construction or still in the planning stage. Here, the investor has a say in the kind of property he or she wants. Till the date of actual completion, rates will tend to be on the higher side

* Properties available for ready possession – though instantly available – do not allow for much picking and choosing on the above-mentioned points. However, since certain dynamics of the property market remain constant, a profit is still possible. A ‘readymade’ property bought for the purpose of investment will have to be given sufficient time to appreciate in value. Also, certain modifications specific to a potential customer’s needs may have to be made. The cost that this involves would have to be adjusted in the final amount.

Property buyers are becoming increasingly specific about what they want. If one chooses to invest in residential real estate, the first preference should be towards units that are located on the first floor.

They should offer a good view and ventilation and, ideally, the use of a swimming pool, clubhouse and other trendy facilities. They should also be backed by adequate parking facilities. Township properties are your best bet on that score, since they provide all these and more.

In conclusion, real estate investment is not a game of blind man’s bluff. Nor is it ever a totally risk-free proposition, especially where spurious documentation, faulty judgment, market crashes and other unforeseen circumstances are concerned. There are some bases that need to be covered to reduce the risk factor:

* If you are utilizing a bank loan in to invest in property, make sure that the ratio of self-finance to the loan amount is supportive of a future profit
* Double-check all legal documents
* Investors need to do their homework and gain sufficient knowledge of current real estate trends.

Avinash Gokhale is Director – Marketing & Corporate Planning, Pharande Spaces – a leading construction and development firm operating in the PCMC area of Pune, India.

You may reprint or quote this article with full credit to the author and a link back to PunePropertyBlog.com

CREDAI PCMC Mega Property Expo 2010 Inaugurated

Did you know that the PCMC area in Pune is developing at a far faster pace than any other area in Pune? More so, it is developing in a more organized and planned manner. The CREDAI PCMC MEGA PROPERTY EXHIBITION that started today has focused on this very area on Pune.

36 of Pune’s best builders like Pharande Promoters and Builders, Rama Builders and Developers, Goel Ganga Group, Goel Ganga Development and Sagar Properties have showcased their projects at CREDAI PCMC Mega Property Expo 2010.

Read the rest of the article and see the photos on the Bharat Estates blog.

Property Prices Move Up: Makaan.Com Study

Property prices in India have moved up in the last 12 months, according to a March report released by property research firm Makaan.com. Makaan.com’s property index, which covers six cities, stood at 1,117 compared with 954 in the corresponding month last year, an increase of over 17%. The rise is attributed to the hardening of property prices in Mumbai and Pune, which rose by 29.4% and 28.1%, respectively. Prices in Delhi rose by 6.8% during the same period.

Read the article in LiveMint, Property prices move up: Makaan.com study.

How To Increase Your Home’s Resale Value

Most of us know exactly what we want from our future residence – the look, the facilities, the accessories, etc. This does not mean, however, that a home which meets all these requirements is ideal.

To judge whether a new residence will be a real asset in the long run, we must consider many variables. Paying attention to these will not only ensure maximum comfort and convenience during actual use, but also maximum resale value in the future.

Mrunal Duggar of Homebay Residential, Jones Lang LaSalle Meghraj, gives tips on how to make the most out of selling your home.

Read the rest of the article, Maximise resale value.

Indiareit Fund To Invest In Pune Projects

Domestic real estate-specific private equity funds have started raising money after a hiatus as developers are finding it difficult to tap the capital markets through initial public offerings.

Indiareit, a real estate private equity fund promoted by Ajay Piramal group, is raising Rs 700 crore in the domestic market. The fund is looking at projects in major cities such as Mumbai, Bangalore and Pune and the investments would be made in other developers’ projects and not in the company’s real estate firm.

Read the rest of the article from DNA, Realty private equities start raising money again.