"Lagaan" the burden of Imposts on Real Estate

One of the more serious problems with Real Estate sector in India is the drag and burden that the state actors (State Govt, Central Govt, Municipal Corporations and other regulatory bodies whose consents/approvals/noc's are required for any real estate project) impose upon real estate projects;

States actors levy and appropriate a very significant share of the total project revenues by way of GST, Stamp Duty, FSI /FAR/TDR , Fungible FSI premiums, Approval Costs and several other charges. (I am ignoring the rent seeking and the costs of delays intrinsic and incidental to obtaining any and all approvals)

Not just do State Actors impose the huge burden of imposts but they also insist on collecting most of the imposts like Premiums and Stamp Duty and other levies upfront (except for GST which is a milestone based levy).The weight of these imposts becomes a heavy millstone to be borne and carried around by the developers for the entire project period which can be from 5 to7 years .

The large imposts by State result in higher upfront costs, higher capital requirements, higher interest and higher risks. It will be illuminating for CREDAI , NAREDCO and other Builder & Developer Associations to enlighten end Customers about the total take out of the State by way of premiums & taxes in all kinds of projects- from affordable to luxury.

Without "Registration" of agreement of sale , customers cannot get housing loans; at this point most customer are grappling with challenges of arranging their life time savings & borrowing funds in their quest of putting a roof over their head. It is at this vulnerable point in the customer's acquisition journey that the the State imposes and collects Stamp Duty from Customers. There is really no justice or equity in collecting such imposts upfront when the customers do not even get possession of the unit after 5 to7 years after payments of stamp duty or not getting it at all.!Ideally therefore, Stamp Duty should be collected upon possession as is the case in some states.

The State actors also do little or no justice to the ease of doing business proposition since they have little empathy as to from where and how should the developer arrange funds to pay all the imposts by way of premiums and TDR etc upfront. Even if these are somehow arranged , there is still the imminent threat and risk that the project could be stalled/derailed for any number of reasons including for want of funding, approvals, slow offtake in sales, litigations on titles or between constituents involved and so on.

Given all the risks appurtenant to real estate projects, developers are constrained to raise high cost funds to meet the burden of these imposts.

We are almost 75 years post independence but our very own people – as represented by elected govts are totally impervious, callous and harsh on the common man who bears and pays it all. Net-net any aspiration of the common man of having a roof over one’s head is fraught with many risks ,subjected to many hurdles and burdened with many costs. So much so ... as against any hope for help or support of the people as represented by the state.

On the other hand the builder/developer enterpreneur has to shoulder the load of all the burdens imposed; all costs eventually get passed on to the end customers in higher price per square feet or upon funding banks by way of NPA's/write offs if the projects fail.... as many do !

Moreover basic housing is as essential and as basic as staple food which is GST exempt; The Govt is already collecting GST on construction material and services. This is topped up by the 5% GST or 12 % GST with ITC on final selling price . On top of it is 5 to 6 % Stamp Duty and registration charges. When GST is being charged, stamp duty should be subsumed under GST.

If the state has to show empathy and concern for this common man aspiring for a roof on his head and wants to extend some real ease of doing business measures for developers , the least they can do is to align collections of all their imposts including stamp duty and premiums along with collection of GST.

Ideally the builders invoices should have an annexure of all imposts with each GST invoice so that there is transparency of the state actors take outs in any project.

This one measure can be the greatest relief to the Real Estate industry and its end Customers in that it will have the following consequences:

1. When state revenues are linked to collections in the project, the state will have to change its stance from being an impervious collector to becoming vested & invested in the projects which will yield them tax revenues.

2. The State will become proactive and expeditious in approvals, or else risk delaying and obstructing state revenue interests embedded and intertwined in swifter and robust revenues from the projects.

3. The lopsided front loaded Capital requirements will be more evenly balanced over the project period providing relief to the developers and customers.

The sector will witness a sea change when the state becomes a collaborator and participant in projects as against being a burden and a drag on them. The sector will get a huge boost and will take off with ease.