Interview with Sankar Subrahmaniyam, COO, Karle Infra Pvt Ltd
From a humble beginning in the garment industry in 1972, the Karle Group diversified into real-estate and infrastructure development in the year 2005. Sankar Subrahmaniyam, COO, Karle Infra Pvt Ltd briefs on the current real-estate scenario.
In the wake of demonetization in November 2016, many banks have cut home loan rates. The government has also announced an interest subsidy of 3-4% for first-time affordable housing homebuyers in 2017. All these initiatives will help entice buyers back into the residential market. We expect demand for quality stock in areas with good connectivity and social infrastructure to revive in the near term, especially in mid-segment housing. However, realistic pricing will be the key to an early revival as right now both buyers and sellers are hanging on in the hope of achieving optimum prices.
Impact of GST on real-estate sector
With the introduction of the Goods and Services Tax (GST), the total incidence of tax will increase from 5.5 per cent to 12 per cent. However, developers will be able to avail of input credit, on all the goods and services purchased and spent in the construction of the property.
The impact of the GST on property prices will be challenging to gauge at this stage because of the lack of clarity on abatement for land value. In a product, where the major raw material is not covered by the GST and the completed unit is also not covered by the GST, the tax input benefit will be hard to calculate or justify. Another important factor that needs to be examined, is the stage of construction. If the project is at an advanced stage, where substantial cost has already been incurred before the application of the GST, very little input credit will be available and very less benefit will be passed on. If the project is at an early stage, more benefits can be passed on.
It is important to note that if GST exemption is extended to affordable housing projects (affordable housing is currently exempted from service tax and a clarification is expected from the government for exemption from GST), then affordable homes may become cheaper under the GST regime. In the case of premium properties, while the basic construction cost may come down a little, but as the input tax credit is limited to 12 per cent, it will not be sufficient to bring down the fresh tax liability to nil because of the taxes paid on other expenditures.
To read more: http://realtyplusmag.com/indian-property-bubble/