Even though the real estate sector is not too happy with Budget 2013 (despite a short in the arm for? affordable housing), it seems the government has taken the first step to dissuade speculators from the market as well limit the housing supply in the luxury segment, along with incentivising the lower-middle class home buyers.
By proposing?a one percent TDS on property transactions valuing more than Rs 50 lakh, a home buyers will have to deduct TDS on every payment he makes to the developer or the seller and deposit the same with the government from 1 June 2013 onwards. The tax is likely to make the purchase a long-drawn process and will dissuade investors, especially, flippers from entering the market, says Pankaj Kapoor, MD at real estate research firm Liasas Foras.
What? this means is that speculative investing where high-value properties change hand frequently will be checked.
No pre-emeptive acquisition of undervalued properties but the FM wants buyers to pay tax on gains made from undervalued property. Reuters
TDS aims to make property transactions more transparent as it increases property sale records and helps curb the black money component to some extent. However, compliance issues would make it difficult for every one involved.
?It will bring about improved reporting and accountability in high-value immovable property transactions, says Anuj Puri, Chairman and Country Head, Jones Lang LaSealle India.
Puri adds, ?considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero/negligible gains.?
Secondly,? Finance Bill has also proposed to tax additional gains made through buying properties at less than the price on which the stamp duty is required to be paid ( undervalued properties).
So ready reckoner prices or the stamp duty value will be the base value for transactions. Hence in case an agreement value of a property is found to be less than its market price, the income tax department would still consider the market price as the full value of that property for computing the income for the developer. And if the difference between the agreement value and the ready reckoner rate is found to be more than Rs 50,000, the difference would be chargeable in the hands of the buyers, explains Kapoor.
This implies that black money flow will be curbed but only to the extent of the ready reckoner prices.
According to brokerage Phillip Capital, there will be a spurt in property transactions till 31 May 2013 as the new law is only effective from 1 June 2013. The other downside is that sellers. especially developers are likely to include this charge as part of the selling cost, resulting in higher property prices.
Moreover, the finance minister has also aimed at curbing the amount of housing supply in the luxury segment at a time when India faces an accute shortage of affordable houses.
The service tax abatement on flats with carpet area of 2,000 square feet or more, or value of Rs 1 crore or more, has been reduced to 70 percent from 75 percent. This means real estate developers who were paying 12.5 percent service tax on 25 percent of the value will now have to pay for 30 percent of the value. The table below illustrates how the service tax rate on luxury housing has gone up.
Source: Liasas Foras
The move is significant since sales in high-end segments have been sluggish across India in the last year along with an inventory pile up.
Source: Liases Foras
As per the above graph, the inventory pile up in the luxury housing is the highest in Mumbai, with Mumbai Metropolitan Region reaching a high of 47 months, where as the ideal months inventory should just be eight to twelve months. This indicates an oversupply situation.
But given that that the hike is only a marginal 0.6 percent, the demand may not get impacted given the high price elasticity of this segment.
?Because of the miniscule magnitude, changes in service tax may not have a significant impact, but it should be seen as little steps towards curbing high supply in the luxury segment, said Kapoor.
However, if combined with the ten percent surcharge on India?s super rich? who earn yearly income of more than Rs 1 crore, the demand in the super luxury segment could be affected, even if slightly.
nfl draft picks 2012 space shuttle enterprise ryan leaf ryan leaf luke kuechly brad miller chandler jones
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.