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To Boost Realty Sector: BMC Set To Sweeten Deal For Builders

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Holds A Meeting With MCHI To Boost Realty Sector

Holds a meeting with MCHI to bring down project costs, levies and penalties likely to be trimmed.

IN a bid to counter the prolonged slowdown in the real estate sector in the city, the Brihanmumbai Municipal Corporation (BMC) is likely to reduce some charges and penalties levied upon builders. After extensive discussions with the Maharashtra Chamber of Housing Industry (MCHI) on May 19, the BMC is planning to reduce the rising project costs for builders, by cutting down on components such as land under construction rates and some premiums. Senior civic officials said that altering the rate of some levies was underway and this meeting with the MCHI was the first of many planned with a view to reducing the financial burden of taxes for building permissions. “We have had a long discussion with the MCHI and are considering the proposals they have prepared. We are trying to realign the taxes to make houses in Mumbai more affordable,” said Municipal Commissioner Ajoy Mehta.

Keeping in mind the concerns of the city’s builders regarding rising project costs, one measure being considered is the ‘land under construction’ rate, which is levied on land when it is ready for development. A civic official pointed out that the BMC imposes a steep tax once encroachments are cleared and construction can begin on a plot, in the form of water tax and sewer tax.

“The logic behind the tax is to discourage builders from sitting on vacant land and delaying construction. Currently, this tax is higher than the property tax levied after the development of the plot, preventing the builders from setting affordable rates for flats. We are thus planning to bring it down,” said the official.

Welcoming the move, the chairman of MCHI Dharmesh Jain said, “The industry has been requesting the BMC to reduce the charges and the premiums which are too high and need to be relooked at. We had a dialogue on it and will continue to work together. The charges have substantially increased in the last five years and it is now unbearably high for the industry.”

The civic body is also trying to figure out a way of reducing penalties linked with construction beyond the approved dimensions. Currently, heavy penalties are charged under three categories. While construction work done without approved plans will amount to a penalty which is 70 per cent of ready reckoner (RR) rate of the land, work carried out beyond the dimensions approved by the commencement certificate will attract a fine which is 20 per cent of the RR rate and the fine for work carried out after a stop work notice has been issued is 40 per cent of the RR rates. “The MCHI has proposed that in some cases where violations take place because customers make alterations for interior planning purposes, a smaller penalty can be levied,” said the official.

The BMC will try to reduce the costs of premiums that a builder needs to acquire for any project. Premiums are charged for the staircase, lift and lobby area which are free of FSI as well as open space deficiency. Among the expensive premiums, for fungible FSI, while the rate for residential projects is 60 per cent of RR rate, for commercial properties, the rate is 100 percent of RR rate.

The real estate sector has long been in a slump, with the city having also witnessing a drop in stamp duty collections, which has affected state revenue collections. In the last financial year, according to figures given by the Department of Registration and Stamps, the total collection in Mumbai was around Rs 2,330 crore which amounted to around 77.24 percent of the total target of Rs 3,016 crore. The figures for Maharashtra were similar.

Source: Indian Express

Also Read: CREDAI Seeks Abolition Of Stamp Duty On Landed Property After GST Implementation

Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

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The state of Maharashtra has added 232 cities to the existing 142 which makes it 373 cities under the Pradhan Mantri Awas Yojana Scheme (PMAY).

The officials at the housing department feel that this step will aid the government take up more projects under the PMAY scheme.

Sachin Kulkarni, Builder shared his concerns over the lack of coordination between the department in executing PMAY projects. He said, “This is a good sign. However, the PMO’s seriousness in promoting HFA is diluted by the time it reaches the authorities. Apart from collecting application from interested beneficiaries, nothing has moved on the ground in urban centres. I hope that this initiative moves on fast track”.

Maharashtra CM Devendra Fadnavis recently states that the in order to create more housing stock the state’s Slum Rehabilitation Authority scheme be brought under PMAY so that it can receive the subsidy to create more affordable housing. He clearly mentioned that the government intends to create more housing stock and it was taking various initiatives and making policy changes for it.

Also Read- Affordable Housing To Get A Boost With PMAY’s Scope To Be Extended To Private Lands

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Real Estate Sector May Fall Under GST What Does It Mean For Buyers?

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One after the other the real estate sector has witnessed massive policy and law changes in its systems. Nonetheless, the tide has not passed yet. The GST council will take up a proposal to bring it under the uniform nationwide levy.

As the industry is still recovering from the RERA Act, the finance minister, Arun Jaitley said that there is a strong case to include real estate in the new indirect tax regime. He said this last week and also mentioned that GST Council will discuss it in November.

At present, the home buyers are paying 12 percent GST on under-construction properties. This percentage includes two taxes which are stamp duty and registration. The rate of which varies in each state but GST will make them uniform.

Santosh Dalvi, KPMG India partner (indirect tax) said, “If the entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The stamp duty with registration and GST comes to approximately 18 percent for under construction properties. He further said, “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices”.

While agreeing, Bipin Sapra, EY partner (indirect tax), added, “It’s going to be a test for the government”.

Developers also pay taxes on raw materials. However, unlike other businesses, they don’t get any tax refunds through input credit. GST taxes every stage of the business activity to better compliance and compensates for it by permitting refunds.

Anuj Puri, Anarock Property Consultants chairman, said “By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” He added that it would make homes cheaper for buyers.

According to Sapra, it will depend on the tax rate applicable.

Niranjan Hiranandani, co-founder of Hiranandani Group said, “Real estate under GST ambit means consumers will only have to pay one final tax.” He stated that with the commencement of RERA it brings transparency and GST would reduce the burden in terms of taxes payable while buying the home. He concluded, “Not only will this create positive sentiment but it should also boost actual sales”.

Also Read: Affordable Housing Is The Changing Face Of Indian Real Estate

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Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

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In a move to protect home buyers from builders declaring their bankruptcy, the Insolvency & Bankruptcy Board of India (IBBI) has amended rules which make it necessary for any company to showcase how they have dealt with interests of all stakeholders. This is directed towards companies like Jaypee Infratech and some of the entities of Amrapali Group.

The regulator has informed about the revised rules last week. This will ensure that banks and other creditors do not get away by protecting their interests at the expense of others who are impacted by the action.  Banks are part of the creditors’ committee. They become an important decision-making body after a company is admitted for bankruptcy.

An expert bankruptcy lawyer said, “The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests.”

According to the new law that was enacted last year intends to speed up the resolution process in a period of 180 days, with a possible extension of 90 days. This will be done by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare a plan. As per the law, an information memorandum will be finalized if the creditor’s committee is willing to take applications from other interested companies to take over the company.

The insolvency experts say that the law providing for the plan binds corporate debtor (the company) and its members, employees, guarantors, and creditors, other stakeholders involved in the resolution plan. However, there are no obligations mentioned in the rule to give any treatment to the stakeholders other than the financial creditors (banks) and operational creditors, which includes vendors and others who may have dues.

The National Company Law Tribunal, based on the comfort provided by the revised rules, will choose the final resolution plan based on bids that are received. The lawyer further said, “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time.”

Also Read: Tanvi Group Fail To Deliver Homes And Declare Bankruptcy

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