Developers, homebuyers on the same page
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.