MUMBAI: The proposed Real Estate Regulatory Bill is “welcome”, but it may make homes more expensive. Mandatory registration of property before advertising is likely to impact smaller players, says C. Shekar Reddy, National President, Confederation of Real Estate Developers Association of India (CREDAI). But pushing for amendments to the Bill is not his only issue. Staving off taxes charged on deemed profits (the differential amount that arises when the registration value of a property is higher than the actual sale price) is another one.
Reddy spoke to Business Line on his concerns in the proposed Bill, the issue of deemed profit and how Credai plans to tackle it.
What is your reaction to the Real Estate Regulatory Bill?
Any policy aimed at disciplining the sector and helping regulate costs is welcome. But it should also have the objective of having a quality product at an appropriate time and a lower price. But how will that happen?
Civic bodies, water/power boards take their time to give clearances. The Ministry of Environment and Forests takes 20 months to give clearances. And the developer pays interest for these delays. Some differentiation needs to be made between affordable and luxury homes. Both are taxed at the same rates.
Will the Bill push up prices?
Yes. A minimum 30 per cent.
Will the market dynamics change?
The number of developers will drop. Under the Bill, a developer cannot advertise the product or sell before obtaining a registration certificate. Getting clearances (starting) from buying land to registration takes 1-3 years. Interests and costs have to borne by the developer in this period.
Most mid/small developers will vanish. These developers were doing soft launches; selling among friends and relatives. The initial capital was obtained at a discount. The end-user also benefited. Now, all that will go.
The Bill will favour deep-pocket developers only…
It will lead to monopoly. The cement market is a classic example. Big players dictate terms. They control production, supply and pricing. We cannot import because of the transport cost.
Are you going to the Centre for amendments?
Yes. We will have another opportunity to present our case when the Bill goes to the Parliamentary Affairs Committee.
The other issue is deemed profit. Can you elaborate on its impact?
The concept came into effect from this Budget. When homes are sold at Rs 40 lakh and the actual cost is fixed at Rs 60 lakh by the registrar, the Rs 20-lakh difference is considered deemed profit. This is taxable from June 1, at the hands of both the developer and the buyer. The developer is not going to bear the burden and will pass it on to the buyer in some way. The developer may not lose initially. But there will be an impact in the long-run.
Do you plan to fight it out?
Yes. We have made representations to the Finance Ministry. We have brought it to the Union Housing Minister’s notice. State Governments have also been approached.
Amidst all this, have developers margins shrunk?
Yes. Earlier, external market forces did not impact the realty sector. But now global recessionary trends and regional political uncertainties do.
But across the country, realty prices have only moved up?
The main issue is taxation. The tax component in an apartment is 35–40 per cent. Earlier, there was no service tax; there is now a variety of taxes such as VAT. States raising registration charges has a 25-30 per cent impact on home prices.