Posted on August 24, 2016 by adminLast updatedAugust 24, 2016

How Social Media Can Be Every Realtor’s Best Friend

Technology is man’s best friend now. With the advent of apps like Facebook and Twitter, people share information in just a wink. Millions of data are getting shared on social media daily. Be it on lifestyle, technology, entertainment or real estate.

So, how can you, being an agent gain access to thousands of people? What information should you post that can make people go WOW? And that too about real estate?

Make it official

It is always prudent to not use your own account when you post real estate news or list any property. Especially, if you are an agent who would like to list properties online or in social media, you should create an official email ID as well as a social media account. It is also advisable to use an official phone number and not provide your personal cell phone or landline number when you post on Facebook.

To create a social media account name you should use your real estate agency’s name. Choose something appealing and genuine enough.

Make it wide

When you post about a property it is a thumb rule to describe the locality, the neighborhood, and accessibility to nearby areas. If you are a real estate agent, it is good to start a social media account starting with articles or blogs describing every area that you will be handling properties in. In this way, you can list your properties later with a link to this blog that carries the neighborhoods info.

Use only articles that describe the real estate boom in a particular area and not the downfalls or the cons of any area as they may result in a change in people’s thoughts when they look for the locality info.

Make it appealing!

Very boring, lifeless listings aren’t fun, especially when it comes to social media. Use authentic pictures of properties and bring out creativity when you market a house in any area. Also, it is best if the property that you are promoting is on the maps. So, geotagging properties when you list them is another great method to promote properties.

Use good quality, clear pictures. They have the capability to make even a small house appealing and attractive if not huge. And watch for the arrangement of things inside the house which may add a lot of credit to the whole backdrop of your image.

Make it interactive

The viewers and readers must be engaged when they read posts from you. So, make them very inquisitive whenever they see your blog. You can create contests and give the winners some fee waiver or vouchers when they do business with you. You can promote your page with a meagre amount that the social media providers provide in order to gain more followers.

Creating voting contests, for example, which area is flourishing in the real estate field or which of these two houses look more beautiful and more such polls can be created for you to know your viewer base, increasing them at the same time.

Make it non-serious

Real estate isn’t that much of a serious field. Let your readers know that! Posting articles like gardening tips  and flooring options may make them be more involved and would love to have a good read.

Posting interesting content and not just the listings will let more people follow or like your page because of the content you post if not for the listings. Chances are, a few may get interested on your property listings too!

Make sure your page looks interesting, exciting and engaging enough when you look at it in a viewer’s perspective. Gain the most from your social media page. Get more likes, more followers and a lot of retweets making yourself the king of the social media real estate!

Posted on August 4, 2016 by adminLast updatedAugust 4, 2016

GST : Will it have an impact on the Real Estate Industry ?

The goods and services tax (GST), cleared by the Rajya Sabha on Wednesday, is expected to benefit the real estate industry, though the impact will depend on the final GST rate.

The real estate sector is one of the fastest growing sector in India and contributes about 7.8% to India’s GDP and is the second-largest employment generator after the IT industry.

Presently this industry has two primary levies, Service tax and VAT, with overlap of tax base and constant disputes on the rate of tax, given the multiple options available for discharge of taxes across States.  This has resulted in diverse practices being followed by developers, across geographies and even within each State.  These issues should be put to rest under the GST regime and the practices and positions should be common across India.  Hence, the taxes paid by a home buyers across States should more or less be the same.

There are also various elements of non-creditable tax costs, like excise duty, customs duty, CST, entry tax, etc paid by the developer on his procurement side, which is inbuilt into the pricing of the units.  All these tax costs add upto anywhere between 22%-25% of the price of units.  The proposed GST should replace these multiple taxes with a single tax and should also ensure smooth flow of credits through the chain.  Hence, it is widely expected that GST should reduce the construction cost in the hands of the developer and thereby aid in reducing or atleast maintaining the current level of prices in the real estate sector.  The only dampner could however be high GST rates (like the 27% GST rate that is doing the rounds) which will offset any possible gains on incremental credits.  Stamp duty is not proposed to be subsumed under GST and hence will continue as it is today.

See also: Existing Tax Reforms

We have analyze the effect of GST on various Realty Sector :

Construction :

Sale of constructed (immovable) property:

GST is levied on supply of goods and services. Hence, sale of property after construction (i.e., immovable property) should be outside the ambit of GST. However, stamp duty on the sale of immovable property would continue to be levied.The only difference would be that the current multiple taxes on procurement side would get replaced by GST and that there would be a rate difference in the current taxes and the rate of GST. The difference in rate, upwards or downwards, would accordingly impact the property prices.

Sale of under-construction property:
Sale of under-construction property is likely to be covered within the ambit of GST. A clause in the Model GST Law states that credit of GST paid on goods and services acquired for construction of immoveable property (other than plant and machinery) would not be available. This clause is a cause of concern as it is ambiguous and interpretative which may lead to litigations and denial of credits for this sector.

Construction of property for leasing

The activity of leasing of immovable property is likely to qualify as a service under the GST regime and would accordingly attract GST. In today’s regime, leasing of immovable property for commercial purposes attracts service tax whereas leasing for residential purposes is in the negative list and does not attract service tax. The same regime should continue under GST.

For commercial properties, though service tax is applicable on lease rentals, the input tax credits are not available under the current regime. In the proposed regime, GST is likely to apply on lease rentals; the issue for consideration is whether credit of GST paid on procurement of goods and services would be available or not.

 

Real Estate Developers :

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 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.

A lot 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.

 

Posted on August 3, 2016 by adminLast updatedAugust 4, 2016

Historic (Goods and Services Tax) GST Bill passed in Rajya Sabha

The Goods and Services Tax (GST) Bill,  one of the most ambitious tax reforms in India is finally passed by the Rajya Sabha on August 3, 2016 and is expected to be implemented from April 1, 2017.

What is GST?

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.

Why GST is important?

GST subsumes all indirect taxes levied by the Centre and the states, including excise duty, service tax, value-added tax, luxury tax and entertainment tax. It will remove all barriers across states and make the country a common market. It is expected to add up to 2% to the gross domestic product, once implemented successfully.

Existing Taxation Norms

The real estate industry in India has witnessed 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. It was the 46th amendment to the constitution that brought massive changes towards taxation in the real estate sector. Subsequently, special powers were given to the state governments, for implementing Value-Added Tax (VAT) on some specific kinds of transactions.

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 categorised 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 are also difficult.

This has led to a situation, where for one real estate transaction, multiple taxes need to be paid. 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.

Impact of GST on Indian Real Estate Industry

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.

In the current situation, a 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, etc. A 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 of the GST, could be the doing away of restrictions on credit utilisation. This will definitely help in strengthening the credit chain in the entire system. If builders can properly manage this aspect, they will see some profit.

Expert Views on GST Bill

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

“The GST 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. The passage of this Bill is likely to positively impact 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. Overall, the Bill is expected to have a long lasting and progressive impact on the economy, enhancing the prevalent business sentiment in the country.”

Ankur Dhawan, Chief Buisness Officer, PropTiger.com

“With the uniform tax, developers will have free input credits on GST paid for services and goods purchased by them which will reduce cost for them and can be passed as reduction to buyers. For commercial property, GST will reduce taxation as developers will be able to get input credit of GST paid for construction services against the GST charged on lease rentals. In the long run if GST can help increase GDP by 2% as predicted by experts it will in turn drive the demand for real estate hence helping real estate industry.”

Parveen Jain, President, NAREDCO

“The enactment of this law will single-handedly solve many of the challenges faced by the real estate sector and help in pulling the sluggish sector out of its long slumber. Heavy taxes that are being paid currently by the developers will automatically go down by a considerable percentage. Construction costs would be reduced to some extent and this benefit could be passed on to the customers, thereby triggering transactions in home buying. There would also be a positive impact on the commercial property segment, as commercial real estate which is already starving from funds could see some kind of a revival.”

Vineet Relia, Managing Director, SARE Homes

The implementation of GST is likely to improve transparency and reduce tax evasion on account of better enforcement and compliance. The home buyer in general could benefit from the introduction of GST if the rates are moderate. The fact that works contract would be taxed as a service under the model GST law is a welcome move and is expected to provide certainty on taxability of the construction sector. This should lead to reduction in tax costs as the tax would be now charged on the actual contractual base and there would not be any overlap of VAT and service tax on a certain portion of such contracts like under the current regime

Anuj Puri – Chairman & Country Head, JLL India

In terms of cost reduction for manufacturers, the current tax structure has three layers at the central, state and city-levels, manufacturing units have to shell out a good amount of money to transport their goods. They end up paying multiple taxes on the transportation. Once GST is rolled out, there will be a common tax structure and thus, the burden of paying multiple taxes will go away. Such units will not have a varied tax structure for transportation of their goods to different locations and will not have to pay each time they transport goods, thus, reducing the overall cost. Likewise, there will be a cost reduction for logistics players, as logistics players create a stock transfer between inventory stocking points within states to avoid a multi-tax scenario.

Posted on August 2, 2016 by adminLast updatedAugust 2, 2016

Lok Sabha clears Bill for quicker, easier debt recovery

The Lok Sabha passed a crucial Bill that will pave the way for faster resolution of bad loans for banks and provide for swift action against ‘wilful defaulters’.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016, passed by voice vote, seeks to amend four laws — Sarfaesi Act, DRT Act, Indian Stamp Act and Depositories Act. Finance Minister Arun Jaitley said the banks must be empowered to take effective legal action against defaulters and the insolvency law, securitisation law and DRT law are steps in that direction. At the same time, he assured the House that banks will take a compassionate view on education loan defaults but there will be no waiver.

The changes in the Sarfaesi Act allow secured creditors to take over a collateral against which a loan had been provided, upon default in repayment. It also provides that the process will have to be completed within 30 days by the district magistrate.

“The present law simplifies the procedure by which there will be quick disposal of pending cases of banks and financial institutions by the Debt Recovery Tribunal,” Jaitley said.

“We cannot have a banking system where people take loans and do not repay. We should not create a culture that I have taken a loan and I can sleep well and banks should be answerable,” he said.

M Rajamohan Reddy (YSRCP) said the bill will improve the ease of doing business by providing a fast-track mechanism to deal with the bad loans of the bank.

Jagdambika Pal (BJP) expressed the hope that the changes in different Acts would help in reducing the non performing assets (NPAs) in the banking sector which are reported to be over Rs 5 lakh crore.

Posted on July 23, 2016 by adminLast updatedJuly 23, 2016

Single window clearance could drive down realty prices

The government is pushing for online application of building proposals and common application forms for approvals, from various departments. Will these moves ultimately benefit home buyers, by reducing property costs?

The construction industry is eagerly waiting for the single-window clearance of all approvals within 30 days, to be implemented. The procedure is at the final stage of implementation.

The Brihanmumbai Municipal Corporation (BMC), announced that they have started online acceptance of documents for building proposals, from May 15, 2016. The civic body has integrated approvals pertaining to the fire and water departments, while the integration of clearances pertaining to coastal regulation zones and forests, owing to the national park located within the city, are underway.

In Delhi, the municipal body has unveiled a four-page Common Application Form, in the north, south and east zones. According to officials of the Municipal Corporation of Delhi (MCD), 10 agencies including the Heritage Conservation Committee, Delhi Urban Arts Commission (DUAC), Delhi Fire Services and Delhi Jal Board, have been integrated with the common form, thereby, doing away with the need for applicants to separately approach these agencies for no-objection certificates.

The online approval process will be implemented, with the help of the National Monuments Authority’s (NMA’s) web portal called ‘NOC Online Application and Processing System (NOAPS)’. The NOAPS has been integrated with the online portals of the Municipal Corporation of Greater Mumbai (MCGM), the New Delhi Municipal Council (NDMC) and south, north and east zones of the MCD. Developers will now need to fill a single form which will be sent to the concerned agencies by the local body. The NMA will also give approvals to the local body, within six working days, down from the present time limit of 90 days.

Multiple approvals, delays and its impact

Developers on their part, have consistently complained that they face multiple hardships owing to delays in obtaining approvals. Zaheer Majeed Memon, partner, Zara Habitats, explains, “We have experienced a lot of delays, owing to the lack of a streamlined system for obtaining approvals. Lack of clarity in interpretation of regulations and multiple windows for obtaining permissions, increase the time taken for projects to commence.”

As a result, in the past few years, numerous complaints have been filed in the consumer courts against developers, for delays in the delivery of flats.

Kishor Pate, CMD of Amit Enterprises Housing Ltd is of the view that “Delivery timelines play a big role in determining how attractive a developer’s project is to investors and how much confidence end-users will have in a developer. In other words, developers not only suffer financial loss because of approval delays but also lose credibility. Now, with a single-window approval system, residential prices are expected to come down by 30%-35%.”

Harjith D Bubber, MD and CEO of Rivali Park, adds that hassle-free clearances will help under-construction projects, by reducing delays and the cost of the projects. Faster approvals will also help developers to start construction of their projects on time and keep it within the planned budget, by avoiding year-on-year inflation in costs.

Benefit to the end-users

By saving time and cutting costs, single-window clearances will eventually benefit the consumers. According to Ramesh Nair, COO – business and international director, JLL India, the government’s move towards a single-window system, will improve the supply pipeline. “It will increase competitiveness among developers and thereby, serve to manage pricing. This will work in favour of end-users. However, it could also bring about over-supply, if developers are not intelligent about their launch choices,” he concludes.

 

Posted on July 15, 2016 by adminLast updatedJuly 15, 2016

Delhi Metro IV phase to be a reality soon, six new lines cleared

To improve connectivity to the outer regions of the national capital, the Delhi government has approved the fourth phase of the Delhi Metro – a move that could boost real estate development and prices along its corridor.

Construction on the fourth phase that comprises six lines will start in 2017 and is scheduled to end in three years. After the completion of Phase IV, the total length of the metro corridor in the city will cross the 450-km mark. The project will cost 55,000 crore and is expecting to see 1.5 million commuters daily. The length of the currently operational corridors is around 213 km and phase III will add another 140 km to it by the end of this year.
These lines, in addition with the 140 kilometres of Metro network added in Phase III, are expected to free up traffic bottlenecks in the congested central and south parts of the city and help passengers from outer Delhi.

The new phase will benefit south Delhi as residents will have the option of taking the Metro to go to the airport and other localities.

The DMRC originally proposed to build a 20-km-long corridor between the existing Aerocity and Tughlakabad metro stations but has now extended it to Terminal 1 station.The line will go through densely populated areas such as Sangam Vihar, Saket, Mehrauli, Vasant Kunj and Mahipalpur of south Delhi.

A senior official said that the government has cleared the original ‘Detailed Project Report’ prepared by the Delhi Metro Rail Corporation (DMRC) despite demands by a few MLAs for bringing about minor tweaks in the route.

“In the meeting, some changes were proposed but the project has been approved in its original form. The construction will start next year and is scheduled to end within three years,” he said.

Earlier this month, a team of DMRC had made a presentation on the six proposed lines before Chief Minister Arvind Kejriwal. The proposed lines are expected to add around 105 km to the metro network and make the airport more accessible for south Delhi residents.

The proposed corridors:

Rithala – Narela – (21.73km)
Stations: Rohini Sector 26, Rohini Sector 31, Rohini Sector 32, Rohini Sector 36, Rohini Sector 37, Barwala, Put Khurd, Bawana Industrial Area – 1, Bawana Industrial Area – 2, Bawana, Bawana JJ Colony, Sanpath, New Sanath Colony, Anaj Mandi and Narela

Inderlok – Indraprastha – (12.57km)
Stations: Dayabasti, Sarai Rohilla, Ahmal Khan Park, Nabi Karim, New Delhi Delhi, LNJP Hospital, Delhi Gate, IG Stadium and Indraprastha

Tughlakabad – Terminal 1(22.20 km)
Stations: Tughlakabad, Tughlakabad Railway Colony, Anandmayee Marg Junction, Tigri, Khanpur, Ambedkar Nagar, Saket G Block, Saket, Lado Sarai, Mehrauli, Kishangar, Masoodpur, Vasant Kunj (Sec-D), Mahipalpur and Delhi Aerocity

Lajpat Nagar – Saket G-Block – (7.96 km)
Stations: Saket-G Block, Sheikh Sarai, Chirag Delhi, GK-1, Andrews Ganj, Lajpat Nagar

Janakpuri (west)- RK Ashram- (28.92km)
Stations: Krishna Park Extn, Keshpur, Meera Bagh, Paschim Vihar, Peeragarhi Chowk, Peergarhi, Mangolpuri, West Enclave, Deepali Chowk, Madhuban Chowk, Rohini East, Prashant Vihar , North Pitampura, Haiderpur, Mukarba Chowk, Bhalaswa, Majlis Park, Azadpur, Ashok Vihar, Derawal Nagar, Rajpura, GG Sabji Mandi, Pulbangash, Sadar Bazar, Nabi Karim and RK Ashram Marg

Mukundpur-Maujpur – (12.54 km)
Stations: Burari Crossing, Jagatpur Village, Surghat, Khajuri Khas, Bhajanpura, Yamuna Vihar and Maujpur

The government had earlier written to the DMRC, stating that it would prefer the revenue sharing model adopted in the construction of the previous metro phases.

Posted on July 13, 2016 by adminLast updatedJuly 13, 2016

Govt exempts big realty projects from obtaining environmental clearance

Following the NDA government’s “Ease of Business” mantra, the environment ministry has exempted big realty projects from mandatory environmental clearances if states impose pre-specified and standard green conditions under their building bye-laws.

But, even before the environment ministry carries out mandatory public consultation and notifies these proposed changes, the urban development ministry has already amended its model Building bye-laws public announcing the relaxation for the construction industry. This will take the construction industry out of the environment ministry’s purview and no project could be challenged on environmental grounds before the National Green Tribunal.

Under the current Guidelines for seeking Environment Clearance for Construction Projects the building and township projects of more than 20,000 square meters size are required to carry out an Environment Impact Assessment (EIA) study to gauge possible impacts of the project on the surrounding environment before starting its construction. If the project is considered safe, the State Environment Impact Assessment Authorities (SEIAA) appointed by the environment ministry, give permission (environment clearance) to the project.

The ministry has now issued a draft notification on April 29 which says the states which will integrate environmental conditions in the building approvals under their Building Bylaws will not have to get environment clearance for construction projects. It replaces the area-specific EIA and environment clearance process carried out by SEIAA prior to starting of the project with standard conditions such as ‘sewage discharge’, ‘water harvesting’ and ‘DG Sets specification’ imposed and monitored by the local urban authorities post construction of the project.

CHANGING STANCE

• 2004 Construction sector brought under the purview of the Environment Protection Act, 1986.
• 2006 EIA Notification, 2006 mandated building projects of more 20,000 sq meters should carry out green assessment.
• 2009 The ministry proposed to exempt projects up to 50,000 sq meters from requirement, but proposal dropped due to environmental concerns.
• Dec 2012 The environment ministry constituted a committee to review the provisions of Environment Impact Assessment Notification, 2006.
• June 2013 Environment ministry accepts panel’s recommendations.
• April 2016 Ministry issues draft notification to replace environment clearance for building projects.

The idea of integrating environmental conditions with building permissions is to ensure smaller buildings also meet the environmental standards. Buildings between 5,000 to 20,000 sq metres were not under the environment impact assessment (EIA) purview earlier but now, under the new model building bylaws, even smaller buildings will be monitored by urban local bodies. ” The idea is to make more buildings follow environmental norms,” joint secretary Manoj Kumar Singh said. ”

Experts Views

This has raised a number of concerns on how the new rules will impact urban environment. Though, the Model Building Byelaws have a chapter on “Requirement of Climate Resilient Construction”, experts believe that relaxing eco scrutiny could have unnecessary repercussions. One of the main problems with the new bylaws is that compliance to green conditions will be overseen by local urban bodies, which experts feel lack the competence to verify the environmental impact of large constructions.

“The municipal corporations or other development agencies are not equipped and qualified to inspect building sites,” said AK Jain, former commissioner (Planning) of Delhi Development Authority. “Such agencies will not be able to assess parameters such as transit-oriented development, water, energy, landscape and whether the location or site is suited for a large building project.”

Green lawyer Ritwick Dutta talked of another concern. As per a Supreme Court order, all construction projects within 10 km of national parks that requiring environmental clearance have to also get the nod of the National Board for Wildlife (NBWL). “If these projects no longer need to go through EIA process, then the projects will not go to the NBWL either,” he pointed out.

However, DS Mishra, additional secretary, urban development ministry, insisted, “The new rules will make compliance with environmental conditions even more stringent. Earlier EIA consultants were involved in preparing reports, they would reach the SEIAA and then go back and forth on various doubts the agency raised. Sometimes, the cost of these projects went up by 30%. Now things will be more stringent, and corruption and delays will be addressed.”

 

Posted on July 4, 2016 by adminLast updatedJuly 4, 2016

PE investments in real estate decline 42% in first half of 2016

PE funds channelled $954 million into realty projects in Jan-Jun, compared to $1.66 billion in the same period in 2015

Despite the falling numbers, the outlook for this year, especially in the office sector, is positive with two of the biggest PE investments in the Indian office space totalling $3 billion in the works.

Private equity (PE) investments in Indian real estate dropped 42% in the six months ended 30 June from a year earlier, as the supply of quality new projects dried up because of a persistent slowdown in home sales.

PE funds invested about $954 million in real estate projects from January to June this year, compared to $1.66 billion in the same period in 2015, according to data by investment-tracker VCCEdge and Mint research.

Large builders have stayed away from starting new housing projects, resulting in a lot of capital chasing a few good quality projects and pushing fund managers to look for refinancing.

“The number of deals has slowed down because there are not many project launches and developers primarily need money to finish projects or refinance loans,” said Diwakar Rana, managing director, capital markets, India, Cushman & Wakefield, a property advisory. “It is a situation where investors are ready to write large cheques but there are not many opportunities available.”

The outlook for 2016, particularly in the office sector, is positive with two of the biggest private equity investments in office space in India totalling $3 billion in the works. Canada’s Brookfield Asset Management Inc. is at an advanced stage of investing $1 billion to buy out 4.5 million office and retail assets of Hiranandani Developers Pvt. Ltd in the Mumbai suburb of Powai and DLF is in the process of selling a 40% stake in its rental assets arm to private equity investors raise about $2 billion.

The two biggest deals this year were in the retail sector. Blackstone Group Lp agreed to buy 1 million sq. ft of retail space in L&T Realty Ltd’s Seawoods project in Navi Mumbai for Rs.1,450 crore and sovereign wealth fund GIC Pte Ltd is buying a 49% stake in Viviana mall in the Thane area, near Mumbai, at an enterprise value of about Rs.1,300 crore. The actual investment by GIC couldn’t be ascertained.

Blackstone also invested Rs.470 crore to fund Bengaluru-based Salarpuria Sattva Group’s 6.6 million sq. ft under-construction and partly leased project in Hyderabad, its first investment in the city.

Among domestic funds, Piramal Fund Management Pvt. Ltd invested Rs.425 crore in a central Mumbai project, Lodha Azzuro, constructed by Lodha Developers Pvt. Ltd through the structured debt route, marking the first deal between the country’s largest developer and one of the largest real estate investors in the country.

Piramal, which has been wary of the National Capital Region, invested Rs.200 crore in two projects of the Prateek Group in Noida. “We have been doing different deals, mostly with developers with whom we already have existing relationships. We are adding new customers, but the pace is slow and this is because big developers have mostly slowed down on new projects,” said Khushru Jijina, managing director, Piramal Fund Management.

The nature of investments in real estate is mostly in the form of debt and structured debt, with very little growth capital available from investors, who aren’t willing to take much risk.

In residential, it is actually the same inventory of projects that are getting financed and refinanced with little fresh stock coming in.

“Debt can only work to an extent. Leveraging beyond a limit doesn’t make sense, unless there is enough cash flow cover. On-ground project activity has still not taken off, leading to weak cash flows, and fundamentally, the developer’s business needs to generate cash to encourage external investors to participate,” said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India.

Despite the three-year slowdown, investors are seeing recovery in some micro-markets.

ASK Property Advisors, which has mostly done pure equity deals, is planning to raise a new structured equity fund this year. “There is demand for money which is patient, at a price which is risk-adjusted, and offers flexibility. Today, developers are busy servicing loans on a quarterly basis, putting pressure on their projects and construction pace. We want to give them that breathing time, so they can finish their projects, and then give us a profit share,” said Sunil Rohokale, chief executive and managing director of ASK Group.

ASK Group will invest from its Rs.1375 crore equity fund, some foreign money it has previously raised and a structured equity fund it will raise this year.

Posted on July 2, 2016 by adminLast updatedJuly 2, 2016

Delhi HC ruling on service tax a precedent for home buyers

There has been a lot of confusion over the recent ruling of the Delhi High Court which held that service tax cannot be levied on the purchase of under-construction flats. Does this judgement apply to home buyers across the country? We examine the implications of the ruling

In a recent judgment,the Delhi High Court has held that service tax cannot be levied on the purchase of under-construction flats. Presently, service tax of 15% is levied on 25% of the consideration value.

The case

Suresh Bansal had entered into an agreement with a builder, to buy flats in a group housing project, being developed in Noida, Uttar Pradesh. The builder recovered service tax from Bansal, for services in relation to ‘construction of the complex’ and on ‘preferential location charges’. Bansal challenged the levy on the grounds that the parliament does not have the legislative competence, to levy service tax on purchase of immovable property and as such, there is no machinery provision for determining the value of the service portion. He also challenged that preferential location charges do not amount to a service and hence, service tax cannot be charged on it.

What the court said

While upholding the centre’s competency to levy service tax, the court held that “A developer, directly or through a sub-contractor, carries out myriad activities for construction of a complex, which, apart from construction of buildings, also involves planning, preparation of a layout, development of land, construction of sewer lines, development of infrastructure for supply of electricity and water, etc. In such cases, it cannot be disputed that no services are rendered by the builder.

“However, indisputably, the arrangement between the buyer and the builder is a composite one, which involves not only the element of services but also goods and immovable property. Thus, while the legislative competence of the parliament, to tax the element of service involved cannot be disputed but the levy itself would fail, if it does not provide for a mechanism to ascertain the value of the services component, which is the subject of the levy.”

In the present case, the value of 25% determining the service component, finds its genesis in a 2012 CBEC notification. The court noted that this value cannot be used as a substitute for the lack of statutory provisions towards ascertaining the actual value of services involved.

With respect to the preferential location charges, the Court held that “These charges are charged by the builder, based on the preferences of its customers. They are, in one sense, a measure of the additional value that a customer derives from acquiring a particular unit.”

Consequently, the court ruled that it can be subjected to service tax.

What the service tax judgement means

While upholding the parliament’s competency to levy service tax on the purchase of immovable property, this judgment holds that the law as it stands today, does not clearly spell out the consideration paid for the services that one avails, while purchasing an immovable property from a developer. Due to this lacuna in the current legislative framework, service tax cannot be levied or collected by the developers.

The machinery provision, for computation of the service element, must be provided in the act or the rules.

The operation of this judgment will be limited, as it is binding on all the courts falling under the jurisdiction of the Delhi High Court. As this judgment is contrary to the view held by the high courts in Mumbai and Karnataka, the judgment rendered by those courts, will be operational within their jurisdiction.

Nevertheless, the Delhi HC’s ruling, may have a persuasive value before other courts across India.

As builders have been collecting service taxes, the contrary views of various high courts are likely to cause a series of disputes, between government departments, builders and property buyers, resulting in plethora of litigation. The latest judgment is also likely to cause significant revenue loss, for the centre. Hence, we can expect an amendment to the act itself, to remedy this lacuna, or a challenge before the Supreme Court along with a plea, seeking an ad-interim stay on the operation of this judgment.