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Policy wise – GST and Real estate


Monthly Archives: August 2016

Policy wise – GST and Real estate

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Hyderabad

GST is set to impact real estate in a big way.

The Goods and Services Tax (GST) is the most radical taxation reform that is set to alter India’s economic prospects. A single indirect tax, encompassing all goods and services, is surely a welcome change. GST is built into the value-added structure that would eliminate the cascading effect of taxes and is expected to boost tax collection by making compliance easy for retailers and other businesses as also reduce overall taxation levels. The results, however, will be evident only two-three years after GST gets implemented.

The existing, top warehousing hubs are:

Delhi-NCR, Mumbai, Pune, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad. These eight city hubs put together had a cumulative supply of organised Grade-A and Grade-B warehousing space of around 97 mn sq ft in 2015 and this is expected to grow to around 116 mn sq ft by the end of 2016. Moreover, GST will result in emergence of new hubs: Belgaum, Bhubaneshwar, Coimbatore, Goa, Guwahati, Indore, Jaipur, Kolhapur, Lucknow Kanpur, Ludhiana, Nagpur, Patna, Raipur, Ranchi, Vapi and Vijayawada. Though GST will give a big push to the manufacturing, warehousing and logistics sectors in India, there are implications beyond these sectors too. The retail industry and residential property buyers stand to gain in particular.

Benefits of GST to different sectors:

Cost reduction from manufacturers:

As the current tax structure has three layers at the central, state and city-levels, manufacturing units have to shell out a good amount of money to transport their goods. They end up paying multiple taxes on the transportation. Once GST is rolled out, there will be a common tax structure and thus, the burden of paying multiple taxes will go away. Such units will not have a varied tax structure for transportation of their goods to different locations and will not have to pay each time they transport goods, thus, reducing the overall cost.

Cost reduction for logistics players:

Logistics players create a stock transfer between inventory stocking points within states to avoid this multi-tax scenario. They have a large number of smaller warehouses at various locations amounting to more than 50 small warehouses in some cases, which increases the overall cost of logistics. Also, management of such small warehouses increases the cost and reduces the overall efficiency of the logistics players. With the implementation of GST, the tax burden will reduce and thus need to have such a fragmented warehouse system will decrease.

Hub-and-spoke syst tem:

Organizers will now be able to explore a different distribution model such as setting up a mother warehouse and regional distribution hubs, which will be different than the traditional carrying and forwarding (C&F) distributor-based models currently adopted.

Merger of smaller warehouses and development of new technologies:

With a new tax structure, the focus would shift on efficiency rather than tax saving (through the means of smaller warehouses). The smaller warehouses will merge to form a more efficient warehouse system. The current scenario prevented use of new technologies as the cost structures in place resulted in margins of less than 5% on a turnover of few million rupees. Also, installing the latest warehouse management software at multiple warehouses is a costly affair. With implementation of GST, smaller warehouses will re-align merge into more productive and logical locations. Without the tax burden, automation will give excellent cost benefits.

Increase in organised warehousing sector:

As a result of the GST, there will a reduction in unorganised warehousing. Price charged by the organised sector will reduce the price advantage that unorganised sector presently enjoys.

Reduction in transit time:

The introduction of GST will reduce transit time taken for border crossings and paper work. The retail industry too will see an indirect impact due to increased efficiencies in the supply chain. The cost to customer, which is linked to taxation, will go down as the multiplicity of taxes will no longer apply.

Residential

Currently, in the case of buying an under-construction flat, a home buyer needs to pay both Service Tax (4.5%) and VAT (1% in Maharashtra, varies from state to state). Additional indirect taxes are paid by the developer during procurement, which get built into the cost of an apartment. Stamp Duty (5% in Maharashtra, varies from state to state) which is payable on property transfers, is not going to be subsumed into the GST. The direct impact of GST on real estate, in terms of tax outflow for developers and consumers, will depend on whether the final GST rate is more or less than the taxes paid currently. The compliance costs will go down too.

It is important to note that the real estate sector shares positive symbiotic relationships with more than 250 other sectors such as cement, steel, IT, BFSI, etc. Due to this, the benefits or drawbacks of GST on each sector will also have an indirect impact on real estate and vice versa. At this point in time, we may see very limited tangible benefits on the real estate industry but the cascading effects will definitely be higher.

Anuj Puri – Chairman & Country Head, JLL India

Source: Times Property, The Times of India, Hyderabad

Will GST have an impact on the real estate sector?

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New Delhi: The goods and services tax (GST), cleared by the Rajya Sabha on Wednesday, is expected to benefit the real estate industry, though the impact will depend on the final GST rate.

“The enactment of this law will single-handedly solve many of the challenges faced by the real estate sector and help in pulling the sector out of its long slumber,” said Parveen Jain, president of the National Real Estate Development Council, an autonomous industry body under the ministry of housing and urban poverty alleviation.

The real estate industry contributes about 7.8% to India’s GDP and is the second-largest employment generator after the IT industry.

However, the direct impact of GST on real estate, in terms of tax outflow for developers and consumers, will depend on the final GST rate.

“It will be important to see what the final rate of GST would be because if the rate is higher than the existing cumulative taxes, it will certainly be a dampener as it will increase the final cost for buying an under-construction flat and defeat the purpose of the bill,” said Neha Hiranandani, director, House of Hiranandani, a property developer based in Mumbai.

After a majority of states approve the constitutional amendment, Parliament will need to pass another bill to implement the tax. Finally, a GST council made up of federal and state officials will decide the overall rate, which may vary for different goods.

“While it is still too early to definitively predict the bill’s impact on the real estate sector, we can expect the sector to benefit in the long term on account of rationalisation in tax-related compliance and slated gains in related sectors such as cement, steel, IT and BFSI (banking, financial services and insurance),” said Anita Arjundas, chief executive of Mahindra Lifespace Developers Ltd.

“Under GST, developers would see lesser burden of tax on input items like cement, and steel, as tax credits would be available for set off at various stages. This can lead to lower construction costs for developers across all asset classes, which could likely be passed on to property buyers,” said Anshul Jain, managing director for India at Cushman & Wakefield, a property consultant.

However, the fact that the stamp duty payable on property is not subsumed in the GST could prove to be a dampener for buyers.

Source: http://www.livemint.com/Companies/ZfE4A6axWbB4cuF9wlooEO/The-impact-of-GST-on-the-real-estate-sector.html

West Hyderabad enjoys price growth

Property Management Hyderabad

With fast paced development, West Hyderabad is gaining momentum and seems like a good option for investment.

Property owners in the west zone of Hyderabad should be pleased to know that real estate prices have risen by 1.9 percent as per Magicbricks research. West Hyderabad has been favoured by potential consumers in the past and this quarter (Apr-Jun 2016) was no different. The localities which stand out in the west zone are Manikonda, Gachibowli and Kondapur.

One of the main reasons behind consumer preference is the establishment of office clusters in this region. The advent of IT/ITeS offices have led to a string of developments in the retail, hospitality and residential sectors. Hence, it will be right to mention that Hyderabad has grown primarily in the western direction. Magicbricks estimation states that 50 percent of consumer preference is concentrated on West Hyderabad.

Price change in the western precinct

West Hyderabad accounts for most of the realty transactions in the market. And why not? With an impressive background of developments, it is not surprising that the quantum of movement is greater than any other zones of Hyderabad.

Every buyer or an investor has their budgets for a property investment. A comprehensive list detailing the price change in different budget segments has been mentioned below:

Overall, the entire region witnessed a price rise. Properties in the budget segment of Rs 3,000-4,000 per sq ft were spread across localities such as Nallagandla, Manikonda and others. These two specific localities saw a 4 and 3.9 percent increase in property prices, respectively. Similarly, Gachibowli and Kondapur had a spread of properties in the price bracket of Rs 4,000-5,000 per sq ft and saw a price rise of 2.5 and 3.3 percent, respectively.

Top localities by consumer preference

Localities in the western zone which seem to have garnered the most attention from consumers for specific budget segments have been mentioned below: Consumer investment preference says a lot about a locality. Everyone researches about a project, a property and a locality before putting in their money. The preference list can be seen as an indicator towards these localities. Obviously, one needs to conduct their due diligence as the requirements of a family and from a property will be different.

Price variations in under construction and ready to-move-in units

After having selected a locality, one might be in a dilemma about the construction status of a property. In both categories (under-construction and ready-to-move-in), there mostly seems to be a price increment.

The difference between the two categories does not seem wide. Therefore, whether an under-construction or a ready-to-move-in unit, an investment in either type of property is lucrative. With the growth in property prices, West Hyderabad does seem like a good option for investment now.

Namrata Ekka, Times Property, Magicbricks Bureau/Hyderabad