Vision of Life; by Sanjay: Package or a Mirage for Real Estate!

“In the real estate business you learn more about people, and you learn more about community issues, you learn more about life, you learn more about the impact of government, probably than any other profession that I know of.”… Johnny Isakson

John Hardy Isakson is an American politician serving as the senior United States Senator from Georgia, in office since 2005. A member of the Republican Party, he previously represented Georgia's 6th Congressional district in the United States House of Representatives from 1999 to 2005. And indeed by now most of the real estate guys must be thinking why they haven’t read Johnny’s above words of wisdom a bit early but then most real estate guys (read builders) were never good at words of wisdom, isn’t it? And nobody respects a profession full of non wise people (read fools) so real estate isn’t also exception to this rule & that’s why even the govt doesn’t respects (read doesn’t care) for real estate! But then in this country which goes by masses & never by classes, even the govt has to take cognizance when “save real estate” cry is rising high, so it came up with a package! Now many will wonder “a package for real estate”, what’s this? As we are used to see food packages for flood hit citizens, we know packages for govt employees i.e. 6^th pay commission or 7^th pay commission (the list is unending just like the movie franchise Fast & Furious series, actually), we have read about package of share or equity to board of directors, we even know about the packages of aid given by USA to other countries (read our beloved neighbor country) & then we are known to loan waiver packages for farmers which are dying every-day due to debt ridden agriculture! But a package for real estate (read builders, at least I thought so) was never heard of, isn’t it? Yet the govt has come up with some Rs70,000 crore (please don’t ask me to count zeros on 7), wow, certainly govt thinks of saving real estate one must say!

Now again some (read many) will say what’s the need of saving builders as over years, actually decades, has not builders earned enough from real estate, by selling homes at higher price every day than earlier, rather it’s the home buyers which must be given the package! Actually, I won’t blame such voices as some part of they said is true & remaining part the builder themselves has proved right by their life style or say attitude towards their as well others lives as ask any common man around, what he thinks about the builders & his answer will tell you the story about real estate i.e. builders! But suddenly not just builders but everybody associated with the real estate has realized or realizing that there is no money left here & that’s why package aspect has come in picture. And when I say everybody associated with real estate then our dear govt also has a big part (read big bite) in this association with real estate. So in hidden words govt also is part (read beneficiary) of the package for real estate. Let’s see how, as common man again will say this is some builder’s ploy to make more money again. Well, for that first one has to understand govt’s money making role in entire real estate chain (read profession). Right from charging stamp duty on every deal which ranges from 6% to even 8% of the deal value (under the name of Metro development or Sur-Charge etc), govt starts earning money with real estate. In Pune average 7% stamp duty one has to pay for every document of any real estate transaction is done. And joke is even when the for purchase of a land the stamp duty has been paid by the builder for buying the land from the land owner yet when a building is built on this land then to sale the flats on the land stamp duty is charged full on the flat’s sale value which includes the land cost, in nut shell the govt earn twice stamp duty for the land cost, isn’t it! Means is a land is bought at the rate of say Rs 1000/sft then govt has already charged Rs 70/sft stamp duty & now when a flat has been sold in the building on said land at Rs 4000/sft then govt charge 7% of this agreement cost also means Rs 280/sq ft, means for the project per sq ft govt has earned Rs 280 + Rs 70 i.e. Rs 350/sq ft from just stamp duty! And then even if the flat buyer who has bought the home in said project has to sale the flat for some reason in first or second year then also again on that sale the govt applies stamp duty with same rate, now imagine how much govt has earned here!

And it’s just start i.e. stamp duty of land deal, then right from development charges of local bodies to various premiums for terraces, balconies to passages to stair-cases to even parking lots & lift rooms, govt earns through every sq ft of area. As well govt charges for utilizing TDR also which the govt itself claims as currency which has been paid to land owners to acquire the reservation lands! And then there are NA charges which are applicable even for the residential zones also (god only knows the logic) & on top of it if some DP (proposed) road is going through your land then to use that area for your project which is on that land only, still you have to pay premiums to the govt for using that road’s area! And then you have fire dept’s noc as your building is of height more than 16 meters which most buildings has to be & for that you have to pay fire premiums! At the same time you have to get your land demarcated every three years & you have to demarcation fees to the govt. Yes there is property tax also, even for the vacant lands which you have to pay to the govt & all such premiums amount can go to Rs 500/sq ft, & this is in addition to the stamp duty amount per sq ft as mentioned above! Ok, if you have done with these figures then we have GST, which for real estate is average 12% of the flat cost, for the flat buyer & can be even 24% for few items of real estate goods or services. And if you are buying a reedy possession flat (read home) the there is no GST but then don’t ask from where the builder who has spent at average of 18% of construction cost will be recovering, don’t guess, you are right, it will be recovered from the flat buyer’s pocket only, adding more to govt’s kitty & again stamp duty gain is there for govt for this added burden of GST loading on the flat cost! And it’s not finished as govt earns even by providing electric supply to the buildings builders build by making them pay for the infra or ask the builders themselves make the infra whereas rules (read law) says some nominal amount has to be paid per electric meter to the govt for electric supply & at present it goes to more than Rs 1 lac per meter, in many cases in Pune!

And lastly there is our dear Income Tax, how govt can survive without income tax as Nations’ development depends on you paying income tax, right? So, there is income tax for the govt which comes average 10% to 15 % & joke is there are Income Tax free schemes by the govt for affordable housing but for that also there is minimum tax i.e. 12%, this is my acquired knowledge as I am not a finance guy but an engineer, experts can guide me on this! If your brain’s hard disc is functioning properly now you can add all these “percentile” figures which are loaded on the real estate transaction is land & flat sale & then tell me who is the biggest gainers in real estate business now & whom the package will help in actual! And when I referred as govt in all above examples, it comes with many faces & many names which includes PMC as public or civic body, MSEDCL as power supply, Registrar of Stamps as IGR, Fire Dept, Central govt as well State finance dept for GST & yes “Super Baap” i.e. Income Tax dept, if at all you make any profit (read, in recent times, is what I meant)!

I am telling very clearly that I don’t say to wave all above charges or don’t apply any tax on real estate, or wave of all the loans by the builders as I am a builder but not a fool, to make such statement! Real estate understands that govt needs money for development of the country & for so many years the industry was happily (is it?) accepting all such burden by the govt from its multiple faces only because there was profit, means money in it! But now when there is over supply of end product (read homes) as well raw material i.e. land, confusion in policies, lack of infrastructure as well buying capacity of the home buyers has been reduced & on such background when govt as well society & media all expects the builders to lower the rates by cutting down their profits then why the govt is not doing that by cutting down size of its bite from the cake named real estate, is what I want to ask the govt! Because look at the remedies by Hon Finance Minister, giving package of Rs 70,000 crores is good but from where this figure has arrived & who can guaranty that it is enough for reviving entire real estate segment of the country & how? If you read the clauses the as usual they come with all safe guarded conditions & I wonder how many projects which really are in need of funding will get benefitted by this package. Because the news says it’s for affordable homes projects only, now there is no set definition of affordable & then the project or company should be free from any debt or such issues! Well, if a company is debt free or loan free then why it will need a package in first place & why only affordable homes project when most of the real estate’s projects are stuck because of wrong policies or irregularities in the policies of different dept’s of the govt!

It’s not about just giving loans & making the builder able to complete the buildings but about sale of the buildings units i.e. flats! As on one side people are unable to buy homes where all the infrastructure is available which makes any building a complete home & on another side where buildings are ready but has got no buyers because lack of proper civic infra around such buildings! At the same time only in Pune thousands of projects are hanging in between launching & completion because of policies like red line blue line of rivers or NOC from aviation dept, & all this for no fault of the developer but because of non-coordination between govt’s own faces (read depts.); now tell me, what package govt is going to provide such incomplete projects & what’s fate of such builders as well the flat buyers here? And then we have a cancer to deal with i.e. Illegal Constructions, these needs no funding, asks for no permission, gets no occupation certificate, nothing they need as they don’t exists, yet they hunt down clients which are seeking for legal homes but unable to buy the one!

Rs 70,000 crore package is welcome step, but more welcome step will be, stream lining entire policy makings & their execution also, for the real estate which will include demolishing every illegal construction too! Or else this package will melt down just the way rivers pour down sweet water in to the ocean which remains salty only despite all the sweet water inflow, keeping the sailors’ thirsty forever!

Sanjay Deshpande

Sanjeevani Dev.

Please view my sharing about real estate in Pune at U-Tube link below..

https://youtu.be/g3lx1Nq7pBs

Please do visit my blogs to know about our philosophy at Sanjeevani ! (Click the links below)

http://visonoflife.blogspot.com/2018/08/pune-city-no-1.html