While the burning question – “Will the property prices come down or not?”€ is the biggest issue most of the people have been facing after the approval of the draft real estate Bill, experts are stressing that the bill will further rise the cost.
According to the experts, the bill is going to have a cost push effect by which the property prices are likely to witness a hike of 40-50 percent, but not merely based on the act alone. Whether a property is sold on carpet area basis or super built-up area basis, the total value would remain same with the cost per square foot going up. Developers will definitely not agree to incur loss with selling at same prices even while carpet area is considered.
CMD of Brigade Enterprises Ltd, Mr. Jaishankar, opines that these moves proposed in the bill will escalate the liquidity needs of developers and translate into a cost addition of nearly 3-4 percent. He adds that the misuse of buyers’€™ funds should be stopped which can be achieved through periodical inspections by concerned authorities. If another institution is formed to regulate funds, then developers will end up spending more on additional fees, which will further rise the cost and will consume more time, he said.
C. Shekar Reddy, National President of Confederation of Real Estate Developers Association of India (CREDAI) also expresses a similar view. Though the proposed bill is welcomed by many, it may lead to increase in property rates. Mandatory registration of properties before advertising would probably impact smaller players, he explained. He is expecting a minimum 30 percent hike in real estate prices.
Reddy explains that it is good to have a policy which is aimed at disciplining the sector and helping regulate costs. However, he points out that, the policy should also have the objective of having a quality product at an appropriate time and a lower price. But this is not easy to achieve because all the government agencies including the water board, power board, civic bodies and the Ministry of Environment and Forests take long time to give clearances to real estate projects. On an average, it would take around 1-3 years for a developer to get all required approvals and during this period, all interests and costs have to be borne by the developer which will also add to the liquidity crunch.
At present, the developers are allowed to announce pre-launches and sell units before getting all the approvals, and that is how they were able to collect the initial capital at a discount. However, the end-users also get benefited as they get units at a comparatively lesser price. But with the new bill, most of the small developers are expected to quit the sector.
Taxation is the main reason for continuous hike in real estate prices, alleges Mr Reddy. Usually, around 35-40 percent tax component is involved in an apartment transaction, including service tax, VAT, etc. Another major issue is deemed profit. When an apartment price is fixed at Rs 70 lakh while the owner sells it for Rs 50 lakh itself, the Rs 20 lakh difference is called as deemed profit. This is being taxable from June 1, at the hands of developer as well as buyers. And this additional burden will be passed on to buyers only as the developers would not keep the burden to themselves.
States raising registration charges also has a 25-30 percent impact on home prices. Adding to this, global recessionary trends and regional political uncertainties have also been affecting the prices of properties in India.
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