The Karnataka government’s decision to increase taxes on lands which will be developed under joint development arrangement is likely to adversely impact real estate developers in the city due to rise in asking price by the land owners.
Presently, developers have to pay a specific value of around Rs 50,000 along with a nominal registration fee in case of a joint development project. However, the government has decided to impose tax after calculating land cost and construction cost in case of a joint development (JD) project.
“This new rule will increase land cost for developers who enter into JDs with land owners to construct a project as land owners will hike land prices,” L S Vaidyanathan, executive director of Nitesh Estates, said. He also said that there was less leeway to pass on the increased cost to the end consumers.
Operating margin in a joint development project is always lesser than a stand alone project executed by a real estate company on its own property. As per experts, operating margins will be further squeezed for realtors who depend on JD route for project development.
“Given the present macroeconomic environment, there is less possibility of passing on any cost to end users. However, property prices will rise in case of a JD project in future due to such provisions,” Shama Sunder, chief financial officer of Brigade Enterprises said. He, however, said that it was too early to gauge the fall in demand due to increase in tax rate.
However, developers said that the recent decision of the government to increase guidance value of land in Bangalore would have minimal impact on big developers. “There should not be any disparity in market value and guidance value of a property. As a company, we don’t see any increase in property prices due to this proposal,” Sunder of Brigade Enterprises said.
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On two gazette notifications on July 13 and July 16, the state government has issued the revised preliminary guidance value of property in Bangalore based on the proposal submitted by B Shivappa, who is the inspector general at the stamps and registration department.
As per the notification, there is an increase of guidance value from 20 per cent to 150 per cent depending upon area in the city.
He, however, said that property prices would rise for those developers where the land value was deliberately kept lower to give lower tax to the government. Referring to this matter, a real estate analyst said that properties developed by small developers would increase as duties paid were less than market rates.