Slump in the Real Estate sector

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In an exclusive and explosive interaction, Laxman Jaiswal Chairman & MD of the real estate giant Ascon Infrastructure India Ltd, explains how the Central and State Government is squeezing both the builders and the consumers.  In conversation Subhojit Roy

Ques: Tell us how both the Governments at the Centre and State are creating an unfair scenario for both the builders and consumers.

Ans: Remember that the Government is a  partner in your Business property by holding 99.43% shares without any investment and this the ground reality of our tax structure in real Estate industry says Laxman Jaiswal, Chairman & Managing Director of Ascon lnfrastructure lndia Ltd

An Analysis to clarify the scenario

Land Area (In Kottah)

10

Cottah

Land Area (In Sq Ft)

7200

Sq Ft

FAR

2.5

 

Santion Area/ Builtup Area

18000

Sq Ft

Land Price Per Cottach

3,000,000

Per Cottah

Sales Price Per Sq Ft

5,000

Per Sq Ft – SBU

Stamp Duty and Registration Charges

8.10%

of the Circle Value of the Property

Basic Assumptions
Land Assessment and Mutation Costs

2.00%

of the Circle Value of the Property

Sanction Fees including Development Cess (Varies based on the location

of the Land eg. KMC/ Other Muncipality/ Panchayat)

 

27.50

 

Per Sq Ft of FAR

(Rs. In Lakhs)

  Amount Receipts by Govt
Land Purchase Costs

300.00

Stamp duty + Registration charge

24.30

24.30

Land Assessment & Mutation Cost to clear the Tax Portion of the land

6.00

6.00

Sanction Fees including Development, Cess

4.95

4.95

Fees of Architect & Structural Engineer upto Sanction

2.12

0.32

Basic Infrastructure Cost

3.00

0.46

Miscellaneous Expenditure

2.50

0.38

Pre-Construction Expenses (A)

342.87

36.41

 
Construction Costs (B)

360.00

54.92

 
Cost for Hira Registration

2.50

Sales and Marketing Costs

42.48

6.48

Finance Costs of Borrowed Funds

150.25

Other Costs (C)

195.23

6.48

 
TOTAL COSTS (D= A+B+C)

898.11

97.81

     
Sales Realisation of the Project (E)

900.00

45.00

Payment of Stamp Duty + Registration by the Buyer

72.90

72.90

Developers Margin (F)

1.89

 
Income Tax Payment by Developer (G)

0.64

0.64

Developers Margin Post Tax (H= F-G)

1.25

 
Total Earnings

1.25

216.35

% Earning Between the Developer and Govt.

0.57%

99.43%

So in the final account the Government earns Rs. 2.16Cr (99.43%) and Promoter Earns        Rs. 1.25L (0.57%) out of a total Earning of Rs. 2.17 Cr. after considering 2.5 as FAR.

The Centre & State Governments are both equally responsible for the decline of the real estate industry.

Ques: What are the reasons for the slump in the Real estate sector?

Ans:  There are several reasons for the slump with a negative growth in the real estate sector. According to National Housing Bank data, property prices in Mumbai and Bengaluru increased annually by just about 7.5% and 5.75% respectively between June 2013 and September 20I7. In Delhi, prices actually fell by -0.70% annually during the same period. Beyond the data, we hear numerous stories of investors in distress with their money stuck in delayed projects. There are also stories of many brokers, in fact the entire realty ecosystem is struggling to cope with this slowdown. Demand in real estate started declining from 2013. By 2016, it had hit an all-time low.  Above all Profession tax , fringe benefit tax of staff , free gifts to Govt officials which are not even taken into account and then  developers are forced to purchase the construction materials from local peoples which are most often highly priced inferior materials. Over and above, NBFC and Banks are also not prepared to help the developers. Even in Denmark, Banks are providing loans on negative interest rate to encourage the Real Estate Business due to there are so many ancillary Industry is involve in the said business. But the general perception among the public mind is that of the builders fleecing them.

Ques: What should be the road map ahead to bring out the RE Sector from this all time low slump?

Ans: Both the Central Government and the State Government must step in and act fast to save the Real Estate industry and suggested the following measures:

1) Stamp Duty and Registration @8% and GST @ 5% should merged immediately.

2) lnput Credit should be allowed immediately.

3) Real Circle Rate to be imposed after survey of locality by registered survey agency.

4) Transaction to allow minimum 10% on circle rate.

5)  Super Built up area to be abolish in Registration process by state Government which is

    also contradictory with HIRA.

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