New depreciation formula, the taxes on old properties 

Recently, Maharashtra State Government circulate new circular, which aims to increase the stamp duty revenue with the help of change in method of calculation of depreciation in old residential as well as commercial building  and it has caused a flutter in the real estate industry of Mumbai.

As per the statement of legal experts, The department’s November 4, 2015 circular showed that property value has rise by up to 35 percent. Consequently, it is the combined liability of both seller as well as buyer of the property as it can increase by up to 75 percent when they pay stamp duty¸ capital gains tax and income tax. Apart from that it could also do the negative impact on the real estate market in the Mumbai city as well as in state. A realtors’ body, National Real Estate Development Council (NREDC), recently wrote to the finance minister of state by stating that people will find it hard to sell and buy immovable property in an in an already “depressed and a very slow real estate market”. The more he added that “This circular will change the method of calculation when it comes to the depreciation of property in respect to the old buildings and due to that we increase the value of all kinds of constructed properties”. However; the real estate experts warned that this change in the method of calculating depreciation will also add substantially to the cost of premises and it can make the property even more burdensome for those who want to buy property.

Till now the state government guidelines were specifying that buildings age will be taken into the consideration and due to that the value of the building can be depreciated due to the age of building.  However; in present, land is no longer a consideration for calculation of depreciation. According to Lawyer Anil Harish, a real estate specialist stated that this new method of calculation of the property will increases the ready reckoner value of at least by the 30 percent because the depreciation is not allwed after certain level. And therefore it will increase the stamp duty directly amount.  The more he added that the circular now allows that depreciation to a lower extent and due to that the value of premises will be higher for any property and it would increase the quantum of the stamp duty without any confusion”.
According to Ashok Narang, the property consultant “This circular will have a negative impact on the real estate market and the volume of business in real estate in the city Mumbai as well as in state because it will create little more complications for valuation of property for computation of capital gain tax as well”. It will draw a impact on property buyer as they have to pay the excess stamp duty while the seller has to pay additional amount for the capital gains tax. However; government will receive additional revenue by increasing the stamp duty in long run, it will dampen the number of transactions.

How new rule will hit the real estate market?

According to the circular of November 4, 2015;

If you have a 150-square-metre office, which is equal to the 1,614 square feet and it is located at the 4^th floor of a 30-year-old building in the area of Veer Nariman Road, Zone 2/16 of Fort division.

So the value of land will be;

1. As per old method of calculation:

For commercial building the rate per square metre * Area of office * Depreciation factor for age of building

Rs 5, 01,300 * 150 * 0.6 = Rs 4, 51, 17,000

Total value of the property = Rs. 4, 51, 17,000 (Rs 4.5 crore)

2. As per new method of calculation:

Rate per square metre of open land * Area of office

Rs 2, 19,400 * 150 = Rs 3, 29, 10,000

Rate per square metre of commercial building Less Open land rate * Area of office * Depreciation factor for age of building

Rs 2, 81,900 * 150 * 0.6 = Rs 2, 53, 71,000

Total value of the property = Rs 5, 82, 81,000 (Rs 5.8 crore)

real estate developers in mumbai

We all know that Mumbai is the financial capital of the country and it is the city where most of the leading real estate developers have their head offices. According to recent survey Bengaluru based real estate firms are well impressed with the skills of those who are working in the Mumbai based real estate firms and due to that most of the Bengaluru based leading real estate developers are approaching to Sr. executives and consultants for the top position who are working for Mumbai based developers.

In last, one year more than 15 Sr. executives from the real estate firms of Mumbai have moved to Bengaluru. In the latest moves, Om Ahuja, CEO of residential services at Jones Lang LaSalle in Mumbai head office, joined Brigade group as the CEO of residential services in Bengaluru. However; 8 months before Ozone group hired the Srinivasan Gopalan on the position of CEO whereas; earlier he was the COO and CFO of Wadhwa group, a Mumbai based real estate firm. Bhavesh Kamdar was earlier with L&T Realty, but recently he joined Embassy group as the head of leasing department.

Om Ahuja, who recently joined Brigade group as the CEO of residential services stated that “In Bengaluru the prospect of joining new company and getting more exposure in real estate sector is much more and due to that I joined Brigade group, which has very good track record in building the best quality integrated townships. Apart from that Brigade group has been recently rated as the great place to work and due to these mentioned reasons I decided to move to Bengaluru and it was easy for me even after spending 20 years in Mumbai.”

Why real estate market of Bengaluru is attracting real estate professional?

In present, Bengaluru is witnessing huge growth in terms of property development as well as price of real estate market and due to that in past eight months of duration the city has witness the sales of more than nine million square feet in commercial space. These days Mumbai based real estate developers are focusing on the luxury residential and commercial development, whereas; in Bengaluru there is demand for office space and city has fuelled the demand for homes buyers as well. However; the city has accounted more than 49 per cent office space absorption in 2014.

According to the reports of Colliers International, Bengaluru has absorbed 13.77 million sq ft of office space in 2014. The Gopalan added that Bengaluru based real estate developers are transparent, professionals and they willing to share project ownership with other private equity firms. In Mumbai, CFO’s of the organizations run the whole show, but in Bengaluru it is the CEO who is responsible to call the shots with the focused operation.

Professionals are running Bengaluru based real estate developers and due to that they are interested in hiring the professionals on frontline. As per the real estate experts, the houses in Bengaluru are listed with the respected names such as; Prestige, Brigade, Puravankara and Sobha as well as some of the unlisted real estate developers such as; Embassy group, RMZ and more. Apart from all these as per the real estate experts companies in Bengaluru are offering better career and growth.

E-commerce companies Flipkart, amazon

As we all know that e-commerce industry is changing the way of traditional shopping and helping the Indian economy to grow. Online shopping has given a fresh lease of  life to hundreds of land owners because leading e-commerce companies are planning to buy the land to build their own warehouses. But earlier it was not possible due to tight FDI policies for multi-brand retail business. Amazon, the American online retail giant has announced the war chest of $2 billion for India when Flipkart raised $1 billion in a fresh round of funding. All the leading e-commerce companies have begun a massive hunt for warehousing facilities in all over the country.

One side Amazon is planning to lease more than million square feet of warehousing space in current year to set-up fulfillment centers and other side Flipkart has recently leased 500,000 square feet of warehousing space across the country and it is expected that these warehouse facilities will commission before November 2015. According to one of property consultant who has knowledge about Flipkart’s plans, “To kill the competition Flipkart wants to gear up its supply chain before Diwali rush, however it is also equivalent of the Christmas sale season in the US when players like Amazon do a big chunk of their business”. All major Indian online retailers have already sounded out property consultants for their plan to lease 2 million sq ft of warehouses before the Diwali of current year. It is expected that these space will be leased by April 2015 and will be ready for operation by July 2015, just before festive season, as per the statement of consultant.

The recent policy on FDI in multi-brand retail didn’t find many takers and eventually it became a non-starter because of stiff local sourcing and upfront investment norms. In December 2014, Amazon had announced that they are going to set-up five more fulfillments in all over India including Delhi, Chennai, Jaipur, Ahmedabad and outskirts of Gurgaon to cover Noida. Currently, they have existing facilities in the outskirts of Mumbai and Bangalore, it has almost doubled its total storage capacity to over half million square feet. According to property experts, Amazon has already leased more than 250,000 sq ft of space in Bhiwandi near Mumbai and 16,000 sq ft of warehousing space in Delhi’s Mohan Cooperative. And now Amazon is looking for more space in other part of country.

Plan of Amazon, Snapdeal and Flipkart for their warehouses:

An official spokeswoman of Amazon said, “According to our company policy, we never comment on what we may or may not do in the future. CBRE which did the Mohan Cooperative deal declined to comment, whereas; JLL, which did the Bhiwandi deal too declined to comment”. But the property consultant quoted before few months that Amazon is looking at warehousing space in Chennai, Hyderabad, Ahmedabad, Jaipur, Ludhiana, and another one in the NCR near Gurgaon.

According to Rohit Bansal, the co-founder and chief operating officer (CEO) of Snapdeal.com, “We are looking at building 500,000 sq ft of warehousing space in the next one year”.

Flipkart is also looking for new space in new cities such as; Ahmedabad, Chennai Hyderabad and Kochi to expand its presence through warehouse facilities. Finding quality warehousing space, however, is a tough task, especially if companies are looking outside of the NCR and Mumbai towards smaller centers.

According to Nirav Kothary, Head in Industrial Services Department at property consultancy JLL, “Real estate developers in Mumbai and NCR have matured enough and are building warehouses with specifications matching international company requirements and now they are ready to catch-up in other cities”. The cities such as; Hyderabad, Jaipur, Lucknow, Bangalore, Chennai and others the bulk of the large deals are for built-to-suit warehouses, stated Anckur Srivasttava, chairman of GenReal Property Advisers who is working with few of the online retailers to lock-in space.

According to the estimate of real estate experts, about 70 per cent of the investment by these ecommerce companies are going to set-up the back-end infrastructure which will include the warehouse and logistics facilities.