service tax

When it comes to sale of flats or transfer of title of immovable property, so now onwards after the issuance of occupancy certificate there will be no need to pay the service tax, as per latest guidelines of Finance Ministry of India. On Monday, CBEC (The Central Board of Excise and Customs) issued the clarification and statement for the related cases which are pending in these areas and are under the jurisdiction or BMC (Brihanmumbai Municipal Corporation) or MCGM (Municipal Corporation of Greater Mumbai).

On October 23, 2015, it has been conveyed to the Service Tax Authorities in Mumbai that all the dwellings or flats or apartments, or more, in which the entire consideration is received after the issue of occupancy certificate by BMC; will fall outside the definition of “Service” which comes under the Finance Act, 1994 and it means there will be no more tax for title transfer of immovable property, as per the statement of the Central Board of Excise and Customs (CBEC).

The concerning board in the Finance Ministry stated that all the clarification was issued to resolve the long time standing issue which is directly related to the levy of service tax on sale of dwellings or flats or apartments and more after the issue of occupancy certificate and before issue of completion certificate in the jurisdiction or BMC (Brihanmumbai Municipal Corporation) or MCGM (Municipal Corporation of Greater Mumbai).

Currently, service tax is levied at 14 %, but when it comes to housing projects so it is at the abatement of 75 % which means levied on the 25 per cent of the total cost.

Housing Projects in Mumbai

The state Finance and Planning Minister, Sudhir Mungantiwar has announced that the government will provide all the required assistance to ensure real estate developments are executed in a time-bound manner.

Urging developers to take up affordable housing projects at a real estate summit organised by National Real Estate Development Council (NAREDCO) Mungantiwar said that realtors have been demanding single window clearance for undertaking housing projects. We are conscious about their demand and therefore have taken it as a priority.

The minister added that once developers start receiving faster clearances, project delivery will be quicker and at a much lesser cost. “While people must confidently invest in real estate, the developer community should ensure timely project delivery with sincerity,” Mungantiwar said.

Sobha Dream Series to cater the housing needs of mid income level

One of the major realty firm Sobha developers is planning to invest the amount of Rs 3,500 crore with an aim to develop and construct the mid income housing project in next 7 to 8 years. With this new project Sobha is trying to enter in the new segment with Sobha Dream Series to cater the housing needs of mid income level.

Sobha realty developers are more in to the segment of luxury homes and for most of the flats the prices are in the range of Rs 40 to 75 lakh. JC Sharma, MD and VC of Sobha developers, stated that “In project the total cost is expected to be approx. Rs 4,000 as we will work on the 10 per cent profit margin. However; the overall construction cost will be completed through advance payment through customers and bank loans”.

This project will be developed on the land of 81 acres at the location Balagere whereas; the constructed area will be approx. 10 million sq ft and it will comprise 7,000 homes, says Ravi Menon, Chairman of Sobha developers. The more he added that company has launched around 2,100 units in the first phase of development and it will comprise 2 million sq ft of fully develop area and we have already sold more than 500 units in this current project.

The whole construction will be based on pre cast technology and the work will begin in few months. From last 20 years, Sobha developers has constructed more than 70 million sq ft area in more than 22 cities.

Extra FSI can hit the Redevelopment work

Recently, the proposal of Maharashtra government to put extra charge on builders more for the extra 0.33 floor space index (FSI) given for housing projects is likely to hit redevelopment work in Mumbai‘s suburbs. The Maharashtra government has increased the ready reckoner rates by an average 15% every year since 2008 and now government is now considering linking the premium to be paid by real estate developers for the 0.33 extra FSI to ready reckoner rates of 2015 as against current base of 2008 rates.

Effect of an extra FSI:

If this proposal will be accepted, so according to real estate experts, so real estate developers may not find smaller redevelopment projects in Maharashtra viable because of the financial outgo, as the base rate for calculation of premium will increase by almost 100 per cent. This move will push up the costs for home buyers in Mumbai’s suburbs. If central government is serious about project “Housing for All” or to make homes affordable than they need to take the extra measures as most of the announced aim to boost the government’s revenue, but these, including the latest one, will impact home buyers in terms of prices and lower areas offered to existing owners in redevelopment projects.”

In some of the localities and zones, ready reckoner rates have been revised upward by more than 30 per cent to 40 per cent on yearly basis. For the year 2015, revision in rates is popular in suburbs such as Malad, Chembur, Goregaon, Borivali, Ghatkopar and Vikhroli have been increased by 30 per cent to 40 percent. It is the same for plush residential localities such as Worli and areas near Bandra-Kurla Complex. In a sluggish real estate market where prices are weakening, a rise in cost for real estate developers is bound to hit their margins. This is expected to see low number of real estate developers coming forward for smaller redevelopment affordable residential as well as commercial projects in the suburbs.

As per the Nayan Bheda, CMD of Neptune Group, “All the equations in real estate market will change as costing itself will double with this proposal. Redevelopment projects in suburbs like Borivali, Kandivali, Mulund, Bhandup, Kanjurmarg and Dahisar will be hit severely as the cost will move up without much room for recovering it through any price hike”.  Once the proposal is notified, real estate developers are likely to renegotiate on the old redevelopment project agreements as construction is yet to start for them, because most of the real estate builders will be interested in reducing the compensatory benefits, including extra space for tenants.

In 2001, the state government of Maharashtra had decided to grant 0.33 additional FSI to real estate projects in the suburbs and extended suburbs of Greater Mumbai and central Mumbai by sanctioning an amendment to the Development Control Regulations for Greater Mumbai, 1991. As per the Vvikas Aroraa, Director, Marketing & sales, Runwal Group, “The costing is growing up and it will have two possible ramifications. Either home-buyer will have to pay more, which looks unlikely given the current market scenario, or developers’ margins will suffer whereas; other industries in real estate market is assessed on its net realization and profitability , and based on that redevelopment projects in suburbs may not see many takers”.

It is expected that this will make an impact as additional space to be shared with existing tenants. it is expected that this move will help to low the price of housing on the back of augmented supply in the suburbs. The premium accrued to the state government and the Municipal Corporation of Greater Mumbai from this additional 0.33 FSI was to be used on upgrade the city’s infrastructure. The additional FSI could be availed of on payment of premium.

US Consulate’s Lincoln House property

Two years back in March 2012, Mumbai’s realty circles were abuzz with news of Tata Housing, Tata Group’s realty company bagging the US Consulate’s Lincoln House property in South Mumbai for a cool Rs 850 crore. Almost three years on, a stroll past it reveals no sign of the Tata involvement, just a sole security guard, wearing a US Mission-logoed uniform manning the post.

Lincoln House, a heritage structure, underwent a grade change which worked as the spanner in the deal wheel. “Lincoln House hasn’t gone anywhere. We are not involved with the deal anymore,” says Brotin Banerjee, MD & CEO, Tata Housing said.

In July 2012, Municipal Corporation of Greater Mumbai, on basis of the Mumbai Heritage Conservation Committee’s recommendations, published a revised list of heritage structures. As per this list, the heritage status of Lincoln House was upped from grade III to II-B. While redevelopment of heritage structures with grade III is permissible, there are several restrictions in place for change especially external, to structures with grade II-B. “The development potential reduced. We are hoping for changes in the Coastal Regulation Zone rules,” says a source involved with the transaction.

Tata Housing had not signed any documents to close the deal or pay the US Consulate any sum. They were the highest bidders and had only paid the earnest money deposit, put down by every bidder. The amount has since been repaid, says the source.

Banerjee says there’s a possibility of a future involvement in the property. “Mumbai Metropolitan Region and Delhi NCR are our two biggest markets. If I can get better projects for Tata Housing in , I’d be keen to do it. I wouldn’t say I am not interested.”  Here is a catch. Banerjee feels that he must be capital ready and the project investment ready for a deal to come through. No point waiting for “500 years for it (investment) to show (results)”. He says, “No point investing Rs 700-800 crore and then the development potential, which you thought was a million square feet, comes down to X. It doesn’t make sense.” As for Lincoln House, it continues to be in limbo, he told a newspaper.