HINDUSTAN T IMES, N EW D E L H I
SATU RDAY, J U LY 01 , 20 1 7
WhatistheimpactofGSTon
residentialrealestatesector?
IMPROVED SENTIMENTS Implementation of GST will benefit all the stakeholders of the residential real estate sector as
the perception of the sector will improve on the back of a simplified tax structure and accountability being fixed at every stage
Anuj Puri
feedback@hindustantimes.com
n
NEWDELHI: The switchover to the
GST regime is undoubtedly one
of the biggest tax reforms in post-
independence India. From July
1, 2017, GST effectively cuts
through a confounding Gordian
knot of taxation complexity in
the country. In other words, it
replaces the multiple taxes lev-
ied by the central and state gov-
ernments and will become sub-
sumed of all the indirect taxes,
including central excise duty,
commercial tax, octroi tax/char-
ges, value-added tax (VAT) and
service tax.
GST has been predominantly
conceptualized around a ‘One
Nation, One Tax’ philosophy and
will:
• Help eliminate the previous
cascading tax structure
• Ease compliances
• Create uniform tax rates and
structure, and
• Help in reducing additional
tax burdens on consumers.
However, the biggest game
changer in GST is the introduc-
tion of input tax credit, whereby
credits of input taxes paid at each
stage of production or service
delivery can be availed in the
succeeding stages of value addi-
tion. This makes GST fundamen-
tally a tax only on value addition
at each stage.
This means that the end con-
sumer will thus only bear the
GST charged by the last dealer in
the supply chain, with set-off
benefits at all the earlier stages.
To ensure that manufacturers,
developers and service provid-
ers pass on the benefit to the final
customer, the government has
included an anti-profiteering
clause in the GST bill under sec-
tion 171 of the GST law. This
clause clearly states that it is
mandatory to pass on the benefit
tax reduction due to input tax
credit to the final customer.
RESIDENTIAL REAL
ESTATE IMPACT
To say the least, the Indian real
estate sector has been going
Vertical forests to strike a balance
between high-rises and nature
Namrata Kohli
n feedback@hindustantimes.com
NEW DELHI: Haven’t we all seen
skyscrapers and gazed at the tal-
lest towers of the world?Now
imagine a skyscraper that does
much more than being tall and
taking your breath away! This
one, if anything, will restore it
and refill your lungs with a gush
of fresh oxygen.
Welcome to the world of verti-
cal foresting, which is slowly
becoming a worldwide trend and
is becoming the way to strike bal-
ance between the jumble of
energy consuming high-rise
buildings and nature.
The idea of a Vertical Forest
was conceived and built by Boeri
Studio in Milan, in 2014. When
Stefano Boeri came up with the
idea of giving back to nature the
space we are taking from it with
continuous urban sprawl, he
thought of Bosco Verticale as a
prototype of the skyscrapers of
the future.
According to architect Ste-
fano Boeri, “Every day archi-
tects all around the world
rethink and reinterpret the idea
of the trees in the sky. Each of
these attempts is extremely
important for the future of archi-
tecture and the future of our
planet, because the single
thought can have certain impact,
but thousands of thoughts can
change the world. Slowing down
the climate changes, reducing
CO2 emissions, making our liv-
ing sustainable and in harmony
with nature.”
Popularly known as the ‘Tree
hugger’, Boeri confesses that all
this is still in an experimental
stage but hopes the idea becomes
a movement someday. He says
that vertical foresting is “our
way to show the impact that
Bosco Verticale is having on the
city and on the international
architectural community, the
discussion it elicits between the
people and the ways it influences
their everyday life.”
Right after the success of Ver-
tical Forest in Milan—it has been
n For the residential real estate sector, GST will definitely be a positive sentiment booster among property buyers.
through significant transform in
the recent times. The recently
implemented Real Estate (Regu-
lation and Development) Act
(RERA) has already started
addressing the issue of non-
transparency and affixes a level
of accountability on real estate
builders and brokers, which is
unprecedented in the history of
the Indian property sector.
For the residential real estate
sector, the implementation of
GST will definitely be a positive
sentiment booster among prop-
erty buyers. GST may not be
instrumental in bringing down
the prices of residential real
estate over the short term. How-
ever, it will benefit all the stake-
holders of the residential real
estate sector, as the perception of
the sector will improve on the
back of a simplified tax structure
n Bosco Verticale, a pair of vertical forest apartments in Milan, Italy.
THE IDEA OF A VERTICAL
FOREST WAS CONCEIVED
AND BUILT BY BOERI
STUDIO IN ITALY’S
MILAN IN 2014
replicated in many other parts of
the world and in China in Nan-
jing, Shanghai and Shenzhen.
But China has taken the lead in
commissioning a full forest city
to Boeri.
Currently, the first forest city
is under construction in China
which will eventually inhabit
offices, houses, hotels, hospitals
and schools, entirely covered by
plants and trees. Liuzhou Forest
City will be built in the north of
Liuzhou, in the mountain area of
Guangxi, in the southern part of
China; in an area that covers 175
hectares along the Liujiang
river. Liuzhou Forest City will
host in total 40,000 trees and
almost 1 million plants of over
100 species.
DEVELOPERS WILL FIND
THE GST REGIME MUCH
SIMPLER TO WORK IN,
WITH THE INPUT TAX
CREDIT BEING A PLUS
and accountability being fixed at
every stage.
BENEFIT TO
PROPERTY BUYERS
A simple and transparent tax
applied on the purchase price is
the biggest take- away for prop-
erty buyers.
Under the GST regime, all
under-construction properties
will be charged at 12% (excluding
stamp duty and registration
charges). It will not apply to com-
pleted and ready-to-move-in pro-
The Liuzhou Forest City com-
missioned by Liuzhou Munici-
pality Urban Planning will be
completed by 2020. Once com-
pleted, the new city will host
30,000 people, absorb almost
10,000 tons of CO2 and 57 tons of
pollutants per year and produce
approximately 900 tons of oxy-
gen.
The new green city, entirely
wired, will be connected to Liuz-
hou through a fast rail line used
by electric cars and will host var-
ious residential areas, commer-
cial and recreational spaces, two
schools and a hospital.
This model city is being cre-
ated in a way that it has all the
characteristics of an energy self-
sufficient urban establishment:
Geothermal energy for interior
air-conditioning and solar pan-
els over the roofs for collecting
renewable energy. The great
innovation of Stefano Boeri
Architetti’s project is the pres-
ence of plants and trees over
every building, of all sizes and
functions.
jects, as there are no indirect
taxes applicable in the sale of
such properties.
VAT (with rates differing
from one state to another) and
service tax together accounted
for 7-9% of the ticket price for a
residential property, which is
3-4% lower than the GST rate.
However, due to information
asymmetry, consumers were
largelyunawareofhowVAT and
service tax are calculated – defi-
nitely, the entire tax calculation
was too complex for laypeople to
understand.
Any real estate product com-
prises of three expense compo-
nents, namely land, material and
labour or service costs. VAT is
calculated on material cost, and
service tax is calculated on
labour and service cost. It is very
difficult for buyers to ascertain
GETTY IMAGES
The diffusion of plants, not
only in the parks and gardens or
along the streets, but also over
building facades, will allow the
energy self-sufficient city to con-
tribute to improving the air qual-
ity (absorbing both CO2 and fine
dust of 57 tonnes per year), to
decrease the average air temper-
ature, to create noise barriers
and to improve the biodiversity
of living species, generating a
habitat for birds, insects and
small animals that inhabit the
Liuzhou territory. Liuzhou For-
est City will be realized in a
really short time, by 2020
For the first time in China and
in the world, an innovative
urban settlement will combine
the challenge for energy self-suf-
ficiency and the use of renewable
energy with the challenge to
increase biodiversity and to
effectively reduce air pollution
in urban areas.
Namrata Kohli tracks everything
related to homes ­­ from interiors to
capturing key trends in real estate
markets in India and globally.
MINT/FILE
what components were included
for calculation of VAT and ser-
vice tax.
The implementation of GST
makes the calculation much sim-
pler, since the buyer has to pay
only a single goods and services
tax. Also, the builder must pass
on the benefit of the price reduc-
tion he enjoys due to input tax
credit to the buyer.
AFFORDABLE HOUSING
The affordable housing sector,
which is a major thrust area of
the incumbent government and
is the cornerstone of its ‘Housing
for all by 2022’ vision, will not be
impacted by GST. This has been
clarified by the announcement
from the finance ministry,which
indicates that there will be no tax
under GST for housing projects
which comes under the afforda-
How disciplined project management can
help optimise realty costs, meet timelines
Gurjot Bhatia
n feedback@hindustantimes.com
Indian real estate has been in a
dynamic transformation mode
for the last 10-15 years. This,
along with increase in popula-
tion and urban sprawl has led to
high demand for housing. To
cater to this demand, investors
and developers across India
have focused their attention to
construct large scale residential
developments.
High demand for housing and
high cost of land has led to devel-
opers opting for the most sus-
tainable option of high-rise multi
story construction over the last
several years. Due to this influx
of residential supply in a rela-
tively short period of the last few
years, developers have had to
face the challenge of managing
the triple constraint of time, cost
and quality. For the residential
sector, cost of construction
becomes the utmost priority as
this is directly proportional to
the type of the product (afforda-
ble, mid-range, luxury etc.).
Also, the timeliness of delivery
has a direct impact on the cost
and the reputation of the devel-
oper. Looking to have a competi-
tive edge, developers are turning
to project management as an
avenue to consistently deliver
residential projects within time-
lines and projected cost.
Disciplined project manage-
ment starts at the portfolio level,
where the strategic vision drives
initial investments and where
value measures are established.
A fully-aligned project, pro-
gramme and portfolio manage-
ment strategy encompasses the
entire development, dictating
project execution at every level
and aiming to deliver value at
each step along the way. Project
management in fact becomes
shorthand for project, pro-
gramme and portfolio manage-
ment. At an enterprise/execu-
tion level, application of robust
project management optimizes
the project cost in number of
ways:
Design Management –
value and performance
hindustantimes
ble housing scheme.
BENEFIT TO
DEVELOPERS
In the previous tax regime, real
estate developers also grappled
with the challenge of multiple
taxation. On various construc-
tion materials they purchased,
builder paid customs duty, cen-
tral sales tax, excise duty, entry
tax, etc., thus creating various
instances of multiple taxation.
The cumulative burden eventu-
ally got passed on to the buyer.
GST will eliminate all the
other taxes, and the benefit of
being able to claim input tax
credit can also improve develop-
ers’ profit margins.
Major construction materials
have not seen a major change in
tax rate.
• Cement will be taxed at the
rate of 28% under GST, which
is higher than the current
average rate of tax around
20-24%
• Iron rods and pillars will be
charged at the rate of 18%,
which is similar to the average
rate of 20% under the old taxa-
tion regime
• Paint, wall fittings, plaster,
wallpaper and ceramic tiles
will be taxed at 28%, which is
also similar to the previous
average rate of 20-25%
• Sand lime bricks and fly ash
bricks will be taxed at 5%,
which is lower than the previ-
ous rate of 6%.
However, the marginal change
in the percentage of these varia-
bles will make a huge difference
as transportation and logistics
costs reduce in the single taxa-
tion system.
While there might be mar-
ginal impact on the real estate
sector in the near term, we are
definitely looking at a significant
improvement in buyer senti-
ment and perception of this sec-
tor. Developers too will find the
GST regime much simpler to
work with, with the benefit of
input tax credit being an added
advantage.
Anuj Puri is chairman , ANAROCK
Property Consultants Pvt. Ltd.
n For the residential sector, cost of construction becomes the utmost
priority.
THE TIMELINESS OF
DELIVERY OF A
PROJECTS HAS A DIRECT
IMPACT ON THE COST
AND THE REPUTATION OF
THE DEVELOPERS
enhancement via value engi-
neering. Cost reduction via
material and technology substi-
tutions.
Identifying risks – Critical
areas, time consuming activi-
ties, labour intensive jobs,
resource-dependent actions,
thereby ensuring cost distribu-
tion of low and high-risk activi-
ties.
Detailed programme man-
agement—Using tracking tools
and software, keeping margins
and backup planning for the
identified risks, thereby allocat-
ing a sundry cost for the backup
in case of high risk actions.
Human resource manage-
ment – understanding the
potential of each team member,
allocating tasks and timelines in
a customized fashion, thereby
optimizing on the overall cost of
man-hours required.
Cost management –drafting
a high-level budgetat conceptual
stage. Aligning it with the
resources/funds available.
Transitioning this figure into a
more detailed budget at the pro-
gramme management level and
further breaking it down to the
www.facebook.com/htestates
RENT AND CAPITAL RATES
EAST DELHI
Location Avg. rental
Mayur Vihar-II
Dilshad Garden
Vasundhra Enclave
Vivek Vihar
Laxmi Nagar
Shalimar Bagh
Patparganj
Shahadra
Mayur Vihar-III
Krishna Nagar
Nirman Vihar
Geeta Colony
IP Extension
REITs in India: An
opportunity awaits
Ramesh Nair
n feedback@hindustantimes.com
NEW DELHI: REITs (Real estate
investment trusts) will be a big
boon for the Indian real estate
industry. In simple terms, a
REIT is an investment tool that
owns and operates real estate
assets and even allows individ-
ual investors to invest in and
earn income through partial/
equity level ownership of com-
mercial real estate without actu-
ally having to buy those assets.
REITs are modelled after
mutual funds, and provide their
investors with all types of
income streams as well as the
benefits of long-term capital
appreciation. A REIT also trades
on major stock exchanges and
provides investors with a highly
liquid stake in real assets typi-
cally offering high yields.
Over the last decade, globally,
REITs have developed into a
mature market force, providing
easy access to high-quality
assets along with stable return
on investments. Taking a closer
look at REITs globally:
• USA:TheUSCongresscreated
the Real Estate Investment
Trust (US-REIT) in 1960 to
make large-scale, income-pro-
ducing real estate invest-
ments accessible to smaller
investors. Since then,
US-REIT has dominated the
market, and has a market cap-
italization which grew from
MINT/FILE
last nail before tendering stage to
avoid any surprise costs during
construction.
Procurement manage-
ment – Of course cost negotia-
tions is the key scope here. But it
is even more important to man-
age the timeline and quantity of
materials to avoid either damage
for being unused for a long time
or cost of storage. On other hand
to avoid cost of unused labour in
course of delayed deliveries.
Regular audits – this
includes design audits, quality
audits, cost audits and process
audits. Possibility of a cost over-
run (or even time and scope) can
be identified and dealt with at a
very early stage, rather than
waiting for it to balloon.
Ethics and compliance—
Ensuring adherence to ethical
practices and processes in ven-
dor selection, consultant selec-
tion, material procurement, etc.
– leads to a robust working sys-
tem devoid of chances of incapa-
bility or under performance,
thereby saving cost on rework /
revision / replacement.
Health and safety stan-
dards–Adherence and con-
scious observance of health and
safety measures, avoids any
health hazards/accidents –
which in the long term, saves
cost on delays and least to men-
tion, damage to the brand’s
value.
While the right approach and
ensuring the adherence to stan-
dard operation process opti-
23
(` per sq. ft)
Avg. capital
15-20 10,000-11,000
12-15 6,000-8,000
16-21 9,000-11,000
22-24 11,000-13,000
17-21 14,000-22,000
22-24 13,000-21,000
19-22 10,000-12,000
12-15 6,000-8,000
20-40 7,000-9,000
26-30 9,000-16,000
14-16 14,000-16,000
15-18 7,000-11,000
13-15 9,000-12,000
Source: PropTiger Datalabs
$1.4 billion in 1971 to $1 trillion
by 2016.
• Singapore: Since the launch of
the first Singapore REIT in
2002, the REIT sector has
become the biggest success
stories of the Singapore Stock
Exchange.
• Australia: The first REIT here
was the General Property
Trust – a listed property trust
started in 1971. A-REITs are
the largest REIT market in
Asia with a total market cap of
€72 billion, accounting for
9.36% of the global REIT mar-
ket capitalization. Given the
currentlysluggishdemandfor
residential real estate in India,
the office sector provides
some relief for real estate
developers, given the declin-
ing vacancy levels and
improving rents.
Close to 283 million sq. ft of office
space in India is REITable. Cur-
rently, there are 901 REIT-wor-
thy properties in India:
There is no doubt that REITs
will provide access to highly
lucrative assets, such as large-
scale commercial properties and
high-quality retail assets, that
may be otherwise out ofreach for
individual investors. Once the
first REIT listings go live in
India, we will definitely see sig-
nificantly increased institu-
tional and retail investor partici-
pation in this market.
Ramesh Nair is CEO & Country Head,
JLL India.
mizes the cost and neutralizes
the possibility of an overrun,
strong project management also
engages in some creative ways to
reduce the cost.
•Moderating ‘over-skil-
ling’ - Sometimes project teams
have the tendency to engage in
“gold plating” and adopt the
mindset that doing more is safer
than doing less. This thinking
may be related to how project
teams respond to risks. When
project teams are risk-averse,
they may overcompensate by
performing quality testing more
than they should or by “over-
communicating.” Moderating
this phenomenon and strength-
ening the knowledge base to
overcome the lack of confidence
can help reduce the unnecessary
costs.
•Opting for Must-Have’s
Versus Nice-to-Have’s - Simi-
lar to the above, project teams
should look at the project plan
deliverables to look for opportu-
nities to identify “must-have’s”
versus “nice-to-have’s” to
reduce costs without compro-
mising the scope, schedule, qual-
ity, and inhabitant satisfaction.
•Look for Peaks and val-
leys in resources and materi-
als – whether we talk of funds,
team members, SMEs or materi-
als – there is a peak requirement
across various stages of the
project and a valley phase. To
mindfully designate the resour-
ces and materials during these
peaks and valleys saves cost of
utilization.
Companies which can effec-
tively reduce costs while keeping
the quality of the project intact
anddelivering on time shall have
an edge over the others. This is
even more so for a residential
building, where the consumer
buys for self-consumption. Opti-
mization cost, while maintaining
quality and timeliness of the
Project has a direct, positive
influence on sales, and project
management plays an important
role in achieving this.
Gurjot Bhatia is Managing Director,
Project Management, CBRE South Asia
Pvt Ltd.
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