Tax relief may spur joint developments in realty
MUMBAI |BENGALURU: Realty projects undertaken through joint development agreements are expected to get a shot in the arm with a Budget proposal on tax liability kicking in only on project completion. With land cost making up 30-50% of the total expenditure for any realty project, this will help in prompting land owners and developers inking more such pacts.
Several developers are already taking this capital-light approach for future projects, given that price expectation of land owners continue to remain high. The measure will help in creating more demand for land assets for future developments.
"Changes in the taxation aspect of JDA (Joint Development Agreement) will greatly encourage more land owners to partner with developers that will benefit the real estate developers and in turn likely to benefit end consumers," said Shishir Baijal, CMD, Knight Frank India.
In Mumbai, the country's most expensive property market, land cost usually comprises half of the project cost and this has been prompting developers to move towards a capital-light growth approach.
"As per the Budget proposal, the tax liability will get shifted towards the end of the project and that removes the hindrances in unlocking more land parcels for development though joint agreements. It allows the project to manage its cash flows in a more optimal way. Better project cash flows will also help homebuyers get better deals and pricing," said Ashish N Shah, chief operating officer, Radius Developers, one of the most active developers using such partnership models.
In a bid to achieve its state objective of Housing-For-All by 2022, the government has announced a slew of measures under the Union Budget to boost housing supply. The Budget's tax-related proposal for joint developments is also aimed at prompting developers to build affordable houses and undertake more such projects.
"The reforms pertaining to various taxations for the real estate sector is a move in the positive direction. Amendment with respect to capital gains tax shall bring in more certainty and predictability to the sector. This along with the reduction in the holding period will further enthuse market sentiment," said SK Sayal, MD and CEO, Bharti Realty.
Along with property markets such as Mumbai and the National Capital Region, other key markets like Pune and Bengaluru are also likely to see execution of more such agreements.
"Bengaluru is one of the markets that have seen most number of joint developments. The clarity on tax structure will boost development and also make available many more properties for joint development. Earlier landlord had to pay tax to the state government before entering into a joint development," said Bijay Agarwal, MD Salarpuria Sattva Group, that has over seven joint development properties under execution in the southern city.
Taxation of such pacts was earlier open to interpretation on whether it involves transfer of immovable property. Many landowners then used to convert their land parcels into stock in trade and used to take a view to pay business tax based on the percentage completion of the project. However, this would change now.
