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Home buyers need not worry about being levied a service tax

Monday, April 12th, 2010

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 Service tax if payment is made before the completion of construction. If Home buyers and property developers cannot procure a completion certificate from the local authority they need not worry about being levied a service tax. 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,” said a finance ministry official.The service tax will be levied only on 33% of the base price of a flat sold at construction stage. 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.

Home buyers and property developers need not worry, if they cannot procure a completion certificate.The finance ministry may admit a certificate from an architect or builders association as a sufficient proof of completion. Sale of fully completed houses will be exempt from the tax if a completion certificate from a local authority is provided.

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.Property developers had a mixed response to the proposal. Rajeev Talwar, managing director of DLF, the country’s largest developer, felt the flexibility could be abused. However, an executive of Delhi-based developer Ansal API appreciated the government’s 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.”

Reference:

The Economic Times

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Rising Property Prices

Monday, April 13th, 2009

Rising Property Prices

The structural adjustment program of the early 1990s initiated the liberalization of the Indian economy. We find the roots of the high appreciation rates in India’s property market in the reduction of interest rates that the NDA Government instituted after 2001. In early 2004, home loan rates sank to a record low of 7.5% and this paved the way for the alarming spiking that typified the country’s property rates in many Indian cities. This encouraged most of home buyers to owe a own property as the borrowing rates is amenable by buyers.

According to Raminder Grover, CEO, Homebay Residential, Jones Lang LaSalle Meghraj, this resulted in a huge demand for quality real estate all over the country post 2003. After March 2005, Indian real estate rates displayed a seemingly unstoppable upward curve. This is directly related to the opening up of FDI in real estate. The market then proceeded to expand at an unbelievable rate of more than 100 per cent, right until the current slowdown, which is bringing many a location and its overenthusiastic rates to their knees. Many overheated pockets have seen corrections of between 12-25%, and it is still too early to exhale yet. Many smaller investors, small in stakes but large in numbers, are pulling out as fast as they can offload their holdings. Those with broader vision and capital bases are hanging on, hoping to see some glimmer of the erstwhile glory associated to Indian real estate.

The ongoing slowdown in the Indian property market following the crisis, is bringing many a location and its overenthusiastic rates to their knees

Is the joy-ride over? For now, it would certainly seem to be. Nevertheless, in India as of today, the dominant trend is still a huge demand-supply mismatch in the housing sector. This would indicate that property prices will rise again in the foreseeable future. However, the finance ministry will first have to finish stabilizing the market artificially – until then, interest rates and negative cash flows will certainly put downward pressure on property prices, says Grover.

However, the roller coaster ride will never have the same exhilarating twists and turns again. The onus from now on will be on affordable housing in the residential sector, and sustainable buildings in the office sector. The present market vagaries have force-fed transparency into Indian real estate. The sector is gaining maturity. Increasing transparency via the introduction of sector regulators, professionalism and international best practices in real estate can be seen over the next decade. Unethical practices will be phased out, and smaller operators will merge into larger, more sustainable entities. All this will be to the benefit of the consumer.

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