If GST comes on a higher rate, the cost of houses under construction will shoot up
Rakesh Yadav, chairman of Antriksh India, said in an interview with Times Property that out of-the-box solutions are necessary to bring back positive sentiment in the market.
“An idea to open escrow account for each project can certainly bring in fresh capital into the market.With an escrow account in place, the builder will not be able to draw money without the consent of the authority (GNIDA). Opening an escrow account will ensure that the builder spends it only on the project and delivers it fast,“ Yadav said.
Antriksh Group has strong presence in the Delhi NCR, Haridwar, Lucknow, and Jaipur. It has successfully delivered more than 55 realty projects and is currently building Antriksh Golf Links in Greater Noida West (formerly Noida Extension) and Antriksh Sanskriti along NH-24, which Yadav said would be delivered by March, 2017.
Excerpts from the interview:
RECENTLY, GNIDA ISSUED AN ADVISORY TO DEVELOPERS AND BUILDERS TO OPEN AN ESCROW ACCOUNT FOR EACH OF THEIR PROJECTS. WILL THIS REVIVE THE MARKET?
>> Yes, I think so. According to the records with GNIDA, nearly 40 builders in Greater Noida have stopped work on 95 group-housing projects midway, as they do not have the funds to carry on with the construction. Mind you--this is a universal problem in Greater Noida, irrespective of the developer. This clearly shows that only developers cannot be blamed for this.
This has affected the delivery of housing units to around one lakh homebuyers. The homebuyers, in turn, have stopped paying their dues after realizing that the builders have stopped work on site; they think, quite naturally, that if they pay the remaining amount, the builder would only divert those funds to other projects, instead of completing their project. So, the main objective behind opening an escrow account for each project is to gain the confidence of homebuyers and investors, who have stopped paying instalments and other dues to builders and developers.
As per the guideline, the escrow account--which refers to money held by a third-party on behalf of the transacting parties--will be monitored by GNIDA. The builder will now not be able to draw money from the account without the consent of buyers and the authority, which will ensure that the builder spends it on the specific project and delivers it fast.This will help because most of the projects here are at the completion stage. The Real Estate Authority Act suggests the same formula for new projects. Once the money collected by builders and is deposited into the escrow account under the act, the authority will ensure that 30% of it goes into paying land dues and the remaining 70% is spent on completing the project.
THERE ARE DEVELOPMENTS ON THE CONSTRUCTION OF AN AIRPORT AT JEWAR NEAR NOIDA--THE FOUNDATION STONE COULD BE LAID EARLY NEXT YEAR. HOW WILL IT HELP THE AREA?
>> This is great news! If this happens, Noida, Greater Noida, and the area around Yamuna Expressway will be the most happening places in the NCR. With the kind of infrastructure that is there in these areas, an international airport will make it one of the most sought-after areas in the NCR. In the next two years, the property rates in these regions would be comparable to those in Gurugram.
HOW WILL GST HELP THE SECTOR?
>> At present, homebuyers have to face two forms of taxes--service tax and VAT--on the purchase of residential units, when they are booked prior to their completion.
On the other hand, there are numerous components of non-creditable tax costs like CST, entry tax, customs duty, excise duty, etc, which are paid by the developer on the procurement side, which are the basic ingredients in the cost pricing of the units.
With the GST in sight now, a single tax structure will be followed, which will allow reduction in cost of units under construction. Developers and homebuyers will benefit out of this, as reduced costs will positively impact the sentiment as well as demand for housing.
If the GST is implemented on a higher rate, then the cost of properties under construction will shoot up. If the rate is higher than the applicable service tax--which is 15% now--this can turn out to be a dampener for buyers, as they will end up shelling out an extra amount. Also, states where VAT is not applicable till now will move to the GST regime.
Thus, we can forecast a better sentiment in the market only if the GST rate is lower than 15%.