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.

Pharande Vaarivana Pune

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:

Pharande Vaarivana PuneAnil 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.

PCMC In 25 Years – A Fast Forward Into The Future

Anil-Pharande
 
 
Anil Pharande on his vision and his expectations of the PCMC of the future
The Pimpri Chinchwad Municipal Corporation follows a real estate model that has proven to be the most progressive and sustainable all over the world. The essence of this model is ‘planned development’ or ‘controlled urbanization’. PCMC is a twin city to Pune, but in that respect is uniquely different. Pune’s real estate development has not followed any sort of plan, and it is not hard to see it as a smaller version of chaotic Mumbai in less than 25 years.
A HOMOGENEOUS, MULTI-FACETED MOSAIC
In the same time span, PCMC will have attained its fullest potential as a model city of the future. Obviously, it will look very different from what we see today. It will have grown exponentially, into a harmonized montage of large industrial units, IT Parks, hotels, shopping and entertainment plazas, educational institutes and healthcare facilities – towering above public parks and gardens and crisscrossed with multi-lane roads and flyovers.
Further, the additional 25,000 acres of land that have come within the PCMC jurisdiction by virtue of the last Development Plan will eventually result in the addition of at least 2 million new homes. These homes will cater to every social stratum of property buyers, from the lower to the high income segments.
HORIZONTAL AND VERTICAL EXPANSION – CREATING A SPECTACULAR SKYLINE
In other words, there will be tremendous – yet controlled – horizontal real estate growth over the next 25 years. Most spaces allocated for residential use will have been utilized for that purpose. But this will not result in an urban jungle, since the PCMC planning blueprint will enforce the maintenance of vast green spaces at all stages of development.
Moreover, the Pimpri Chinchwad Municipal Corporation will at all times endorse self-sufficient real estate developments such as townships and other integrated residential projects. The authorities have long since recognized that these are the most sustainable and progressive models for optimum real estate growth. These projects will ensure a scientific uniformity to the horizontal growth.
However, even these 25,000 acres will not suffice, since PCMC will have to accommodate a massive demand for housing. The following graph illustrates this point – it charts the population growth in PCMC over the last 25 years, and clearly depicts that this growth has been almost ten-fold (from 200,000 to 2 million).
graphAs the graph below indicates, there is reason to believe that population growth is likely to cross 50 lakhs (5 million)  by 2035
This growth will be fuelled by several factors. On the one hand, there will be a huge requirement for homes from the rapidly growing manufacturing sectors of Pimpri-Chinchwad and the Chakan-Talegaon belt. Chakan itself, though a burgeoning industrial hub, has little to offer by ways of residential facilities. The onus naturally falls on PCMC, which will necessarily be the residential location of choice for the entrepreneurs and employees of these units.
Simultaneously, there will be the spill-over effect from Pune City (which will have reached complete saturation point in the next 25 years). We further have to factor in the ever-increasing migrant population from all over the country, attracted as much by the excellent education institutions as by the varied career opportunities.
The obvious solution lies in growing vertically as well as horizontally. More land will have to come within the purview of planned development, and building heights will need to increase from the currently permitted 70 metres – approximately 22 floors plus parking – to 100 metres or more. FSI, which still currently stagnates at 1, will need to be raised to at least 2, or even 2.5.
In 25 years, PCMC will be a skyscraper city on the lines of Gurgaon.
WORLD-CLASS INFRASTRUCTURE
In most cities, such growth would mean serious infrastructure challenges. We have already seen what happens in a city like Mumbai, where skyscrapers are being built without sufficient parking, connectivity and municipal amenities to support them. However, thanks to the master plan that PCMC will always adhere to, the necessary infrastructure will precede the building of high-rises. I firmly believe that 25 years from now, the Pimpri Chinchwad Municipal Corporation will serve as a national and even international benchmark for planned, scientific vertical real estate growth.
An essential pre-requisite to support this massive growth is an advanced public transport system. With an eye on this future requirement, PCMC has adopted a model similar to Ahmedabad’s Janmarg – a scientifically designed BRT-based  public transport system spanning 130 km across 14 routes in PCMC. This system involves 4-lane wide, exclusive roads with grade separators that will reduce the dependence on private transport in favour of more efficient public transport. This, in turn, will result in smooth traffic flow, less road blocks, radically lower pollution levels and a healthier, energy-conserving environment. To ensure that there are no hitches in the development of this lifeline, the PCMC has established an Urban Transport Fund for its funding.
Another pre-requisite for efficient transport is more connecting roadways. A ring road is on the drawing boards, but that will become truly effective only with the implementation of a hub-and-spoke road network. To illustrate this point, there are currently only two arterial roads connecting Pune with Pimpri-Chinchwad, and only two connecting Pimpri-Chinchwad with Chakan. These cannot sustain the enormous increase in vehicular traffic that industrial and residential growth will generate.
Again, it is my opinion that this alone may not suffice to cater to the public transport needs that will emerge over the next two decades. I personally feel that an elevated skybus or monorail network or even an underground rail network will be called for.
THE ULTIMATE GAMECHANGERS
I cannot end these musings without mentioning the new international airport being planned near Rajgurunagar and the International Convention Centre at Moshi, which will cover a sprawling 200 acres. The Convention Centre alone will spawn a huge tourism, hospitality and retail boom which will convert PCMC into a major urban destination both within and outside Maharashtra, perhaps second only to Mumbai. Global hotel chains will have redefined the hospitality sector, and the shopping centres will be populated by marquee retail brands.
In fact, the next two decades are surely going to see PCMC being catapulted into the international Big League, giving it a distinct global identity in its own right.
Anil Pharande is President, CREDAI – PCMC and Chairman, Pharande Spaces, one of the most innovative developers in Pimpri-Chinchwad

Pune Property: The Power of Location

What are the factors that make a residential project popular? Speaking in contemporary real estate terms, there are some fundamentals:
1. The builder’s brand equity
2. Attractive elevation, with tempting amenities
3. Competitive property rates
4. Location
One could argue that a builder’s brand, driven by reputation and prestige, shouldn’t be a major consideration. However, the fact is that a well-known developer’s banner sells project simply because it is a trusted name on the market. Such a builder is known for quality construction, clean titles, decent property rates and overall transparency.
Of course, elevation and amenities count for a lot, too. After all, a property is basically defined by its physical characteristics. Attractive rates certainly matter, but one should not have to forgo basic quality, aesthetics and proper amenities just for lower rates. However, since Pune is a city of passionate bargain-hunters, this is what often happened in the past – buyers overlooked the fact that a cheaply-priced property does not really appeal.
Fortunately, these days Pune property buyers have become aware that neighbouring Pimpri-Chinchwad offers residential projects that are vastly superior to anything that Pune has to offer – at much lower rates, and in far more pleasant surroundings.
woodsville-1-1478
Which brings me to location – the last but certainly not the least consideration in my list above, and the primary topic I want to address here. Location is a vitally important factor to consider while buying a home in Pune. In fact, location should be a priority consideration.
location1-150x150
What gives location such power on the Pune property market? Take the area near the Pune International Convention Center in Pimpri Chinchwad, for instance. Obviously, a location that is now so popular with property buyers from both Pune and the PCMC area does not win its reputation in a lottery. There are qualifying aspects involved. It is home to the integrated residential project called Woodsville, and is very favourably connected in terms of public transport. The roads are wide and spacious, ensuring that traffic bottlenecks cannot happen. There is ready and limitless availability of water, the scenery is a homebuyer’s dream come true and the development in this area is carefully regulated.
The last point is very significant – regulated town planning ensures a sufficient amount of
open spaces and prevents cluttering. In other words, homeowners in Woodsville are assured that what they see from their windows and terraces today is exactly what they will see ten years down the line. Another developer cannot buy up the plot in front of their unit and build some kind of monstrosity there. The massive green cover is being maintained for ecological reasons, so the generations to come will breathe the same unpolluted air.
The fact that this area is within easy reach of a number of crucial points within Pune as well as from important cities like Mumbai and Nasik has contributed to its popularity. In other words, location – especially from the point of view of a Pune property buyer – should be seen both from both a present and future perspective.
Anil Pharande is President of CREDAI PCMC and Chairman of Pharande Spaces, a leading construction and development firm that develops integrated residential projects in the PCMC area of Pune, India.
On the Pune Property Blog he discusses the market fundamentals that drive one of Pune’s most dynamically emerging real estate investment destination.
You may reprint or quote this article with full credit to the author and a link back to PunePropertyBlog.com

Pune Property Tax Rates May Rise With New System

Based on the directions of the state government, the Pune Municipal Corporation (PMC) has decided to introduce the capital value system (CVS) for computing the Annual Rateable Value of a property, for fixing the property taxes in the city. The civic administration has tabled a proposal before the standing committee regarding the move.
The move has been designed to bring uniformity in the taxation system in all the municipal corporations across the state. As a result, if the proposal is cleared, the property tax charges might go up.
At present, the ARV is fixed on the standard rents fixed by the Rent Control Act. Under the ARV system, the probable gross rent of a property is taken into account. For domestic buildings, 20 percent of the amount is calculated. For commercial buildings 25 percent of the amount is calculated.
Under the new CVS, the calculation of tax is based on the value of the land as well as that of the building. It takes into account the capital value of the building, which is in turn based on the cost of the land as well as the cost of the building, net of depreciation.
The proposal says: “In different municipal corporations in the state, there are different methods of fixing the ARV of a particular property. But, in order to bring uniformity, transparency and introduce simplicity, the new method of CVS is being considered.” The ARV fixed under the capital value system, will be updated every five years.
Source
http://www.indianexpress.com/news/New-system-on-anvil-to-evaluate-property-tax-likely-to-push-up-rates/677588

Free Parking Space Norm In Pimpri-Chinchwad Municipal Corporation

Pimpri-Chinchwad Municipal Corporation is the first civic body in the state to come up with a decision under which buyers of residential apartments get free parking space.
On June 11, 2009, the Pimpri-Chinchwad Municipal Corporation (PCMC) declared that no building permission plans will be sanctioned if the builders refuse to provide free parking space to apartment buyers across the twin industrial township.
This was after a series of reports in Pune Newsline, highlighting the Bombay High Court which had ruled that builders cannot sell parking space and that it should be made available to the flat buyers free of cost.

Pune Property Tax: PMC Says One-Time Tax Not Feasible

PUNE: Shooting down the Congress party’s proposal to amend the property tax rules to introduce a one-time (optional) tax payment scheme, the Pune Municipal Corporation (PMC) administration has stated that the proposal is unfeasible and will result in decline of the civic income from property tax collection.
“If at all the one-time tax plan is executed, the PMC cannot make it compulsory. Also, the civic body will face financial losses as if property owners pay tax for one-time as the PMC will not be able re-assess the property. Small properties could pay one-time tax, but big properties like malls, IT properties, banks, hospitals, hotels, etc will not show interest in the scheme considering the amount they will have to pay,” said municipal commissioner in his comments submitted to all party leader’s meeting.
The administration has stated that the proposal is not feasible as it will deprive the PMC from re-assessing the property and considering the rising property rates in the city, it will result in the financial loss to the civic body.
Read the rest of the article here.

PMC To Impose Penalty On Property Tax Defaulters

PUNE: The Pune Municipal Corporation (PMC) will execute the state government’s notification to impose a 2 per cent penalty on property tax defaulters.
For the year 2010-11 property tax for the first six months has to be paid before September 30, 2010 and those who fail to pay it will have to pay a 2 per cent penalty on the tax amount every month till the tax is paid. The second instalment of the property tax has to be paid before December 31, 2010.
The PMC’s tax collection and assessment department has proposed that digital pictures of all properties be taken for the department’s records and an aluminium plate be fixed on each property, identifying its survey number and other details.
Read the rest of the article here.

Celestial City: Ravet’s Pride Is Right On Schedule

Celestial City, the unique 25-acre integrated township by Pharande Spaces and Rama Group, is now in the second phase of construction. As planned, this premium apartments complex at Ravet, PCMC is transforming the real estate topography of an area known as the Gateway to Pune.
celestial-city-ravet-roads1
Celestial City has been conceived as a completely self-sufficient residential microcosm that will offer its residents absolutely everything by way of a comfortable lifestyle.  That blueprint is now rapidly being transformed into reality as construction enters the next phase.
The location of Celestial City couldn’t be better – it was planned as both the ultimate residential destination and a sure-fire investment hotspot. Ravet is located at the confluence of the old NH4, the Dehu Road- Katraj bypass and the Mumbai-Pune Expressway.
celestial-city-phase-two
Its ready accessibility, as well as proximity to vital establishments, has earned it the distinction of being one of the most prominent growth corridors on the Pune real estate market.
Because of its unique location, invigoratingly green spaces and affordable residential property options, Celestial City is now attracting a huge demand from executives working in Hinjewadi, Pimpri-Chinchwad, the Talegaon MIDC and Chakan MIDC.
With Phase II of Celestial City now in active progress, the project is well on the way to completing the planned roster of 2000+ units at this avant-garde budget homes project.
celestial-city-sample-flat
Celestial City is backed by the experience and impeccable track record of two leading development concerns. Pharande Spaces, the residential property trendsetters in Pimpri-Chinchwad, already have several landmark projects to their credit – including the award winning Culture Crest.
To date, Pharande Spaces have completed residential projects in excess of 1.5 million square feet. Likewise, Rama Group’s professionalism and expertise have led to the completion of 23 projects that cumulatively account for 5 million square feet of construction.
The fact that Celestial City is fully underwritten by the country’s leading financial institutions ensured a smooth, seamless construction flow even during the worst of the recent recession. With Phase II on schedule, Ravet’s crowing glory has taken a decisive step towards final completion.
When two real estate giants join hands to create the City of the Future, the outcome can be nothing less than magical….

celestial-city-archA masterpiece in the making

celestial-city-sample-flat-livingroom
K. D. Nagarkar is a blogger and freelance journalist who specializes in real estate and environmental issues. He keenly follows the development of integrated township properties and other sustainable projects in and around Maharashtra.
You may reprint or quote this article with full credit to the author and a link back to PunePropertyBlog.com

PCMC Pay Points Ensure No More Long Queues To Pay Bills In Pimpri

On March 31 this year, thousands of residents in Pimpri-Chinchwad had lined up at four divisional offices of the municipal corporation to pay their water bills and property tax bills. The PCMC was forced to extend the deadline in view of the serpentine queues that created chaos and unruly scenes.
Such endless queues at PCMC offices have now become a thing of the past. The PCMC has started Pay Points, a concept popular in the city of London. Pay Points are like ATM centres where residents can pay their property bills and water tax bills using their swipe cards.
The idea is the brainchild of Municipal Commissioner, Asheesh Sharma, who had had a first account experience of the Pay Point System earlier this year in London. On August 20, the PCMC inaugurated as many as five points — four at divisional offices and the fifth one at its headquarters in Pimpri.
Along with Pay Points, the PCMC has also started online issue of death and birth certificates. The earlier system of coming to PCMC headquarters, filing an application and waiting for a few days to get the certificates have been done away with. Now just go online, make payment and get your certificate in a jiffy.
Read the rest of the article here.

PCMC News: Online Property Registration Gets Strong Response

The Hinjewadi sub-registrar’s office became the first office in the state to roll out the online property registration programme, wherein property buyers could access their mutation entry online. With 64 online registrations in the pilot project, the land records department is planning to replicate the process across the entire state.
Settlement commissioner and director of land records, Dr Shailesh Kumar Sharma, said that the online mutation entry started on July 23 and in a month’s time they have received an overwhelming response.
The idea behind developing such a system was to ensure better transparency and accountability. The system monitors each officer closely and they will be assessed on the time taken for issuing the notices and updating the records. The software has been provided by National Informatics Centre (NIC).
The Hinjewadi and Paud offices that fall under the Mulshi taluka were covered in the trial run. The online mutation entry programme will enable property buyers to take a printout of their registration details, 7/12 extracts and property cards even from home, said the official.
The trial run saw the documents registered at the sub-registrar office forwarded to the tehsildar office where the officer receives an SMS mentioning the registration number. The notice has to be issued the moment they get the document.
Within 15 days the document gets uploaded provided there is no dispute. In case of disputed property, the entry goes into the dispute register to be cleared within three months. If there is no dispute, the buyer can get to see the registration details uploaded on http://mahabhulekh.mumbai.nic within fifteen days.
Read the rest of the article here.