De­vel­op­ers, home­buy­ers on the same page

HT Estates - - FRONT PAGE - HT Es­tates Cor­re­spon­dent

is unique be­cause an ex­ist­ing prop­erty there can­not be re­de­vel­oped. There is a lim­ited area that is avail­able for devel­op­ment on a one-acre plot but the prices are ex­or­bi­tant.

“For al­most all high- value res­i­den­tial trans­ac­tions in the LBZ area in the last five to 10 years, 70% to 80% of the amount has been fi­nanced by banks. The market has al­ready been cleaned up and de­mon­eti­sa­tion will not have any im­pact,” says Jai­want Daulat Singh of Daulat Singh Con­sult­ing Pvt Ltd.

What’s unique about this market is that the last few high value trans­ac­tions in the area have been be­tween com­pa­nies that want to show the full value in their books. The cir­cle rates in the market are higher than the trans­acted val­ues due to which the buy­ers have to pay a higher stamp duty and sell­ers have to pay a high cap­i­tal gains tax.

To cite an ex­am­ple, for a prop- erty trans­ac­tion that took place a few years ago for a bun­ga­low lo­cated on a land par­cel of less than one acre, the buyer had to pay stamp duty of al­most ₹ 10 crore on a val­u­a­tion of ₹ 252 crore be­cause of high cir­cle rates, even though the deal was struck at ₹ 136 crore. In the last few years, ac­tiv­ity in the market has come down be­cause rules do not al­low buy­ers to build or re­de­velop these prop­er­ties and be­cause the cir­cle rates in these ar­eas are very high. Also, out of the 200 pri­vately held homes in the LBZ that in­cludes pre­mium ar­eas such as Au­rangzeb Road, Prithvi Raj Road and Am­rita Shergill Marg, what­ever churn­ing was ex­pected to take place in case of 10 to 20 houses has al­ready hap­pened. The market is dry not be­cause of the cash go­ing out of cir­cu­la­tion but due to fac­tors such as re­duced de­vel­opable area and high cir­cle rates com­pared to market rates. De­vel­oper bod­ies and home­buy­ers have wel­comed the gov­ern­ment’s de­ci­sion to ban ₹ 500 and ₹ 1000 notes.

Parveen Jai, pres­i­dent, Naredco has said that it is a “pos­i­tive move and will help keep a check on the il­le­gal black money move­ment. As for af­ford­able and mid-hous­ing seg­ment, these will not be af­fected since these trans­ac­tions are pri­mar­ily routed through bank bor­row­ings.”

The or­gan­ised part of real es­tate sec­tor will not be im­pacted. “It is only the un­or­gan­ised fly-by-night play­ers who will be af­fected. This move will help the sec­tor fight more ef­fec­tively for re­moval of sec­tion 43CA of the IT act as now there is no rea­son to charge tax on so-called deemed in­come on both buy­ers and sell­ers post this move,” says Ge­tam­ber Anand, pres­i­dent, Credai.

Home­buy­ers too have wel­comed the move. “It will help weed out ‘ the ra­tio’ be­tween black and white com­po­nent which is used to make pay­ment for prop­er­ties. The im­pact on real es­tate prices is ob­vi­ous. The move will make prices more af­ford­able and do away with un­re­al­is­tic pric­ing that dom­i­nates the market to­day,” says Ab­hay Upad­hyay, na­tional con­venor, Fight For RERA.

Prop­erty valuers, how­ever, are of the opin­ion that the move will lead to prices go­ing up in the long term. “With time, it will not be sur­pris­ing to see prices go up as sell­ers come to terms with the fact that cap­i­tal gains tax has to be paid on monies. Sell­ers are likely to fac­tor that li­a­bil­ity into the sale price,” says Sachin Sand­hir, global manag­ing di­rec­tor – emerg­ing busi­ness, RICS.

The land pur­chase process ear­lier had the owner en­ter­ing into an agree­ment with a builder where part of the pay­ment was un­ac­counted. Now, since the owner can no longer do that – he would ei­ther sit out on the land, stalling the en­tire devel­op­ment pro­ject, or charge a pre­mium to main­tain the same cash mar­gins af­ter tax. This may in­crease the in­put cost for de­vel­op­ers im­pact­ing re­alty prices.


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