Friday, September 9, 2011

High Property Prices - Why does Government give a free hand?

Tax Cow:

Builders play important role in helping the politicians rule the land. No. I am not talking about "Politicians & Builders Nexus" or bribes, election funds and assistance to convert "loot of taxpayers' money" into white.

I am talking about the "official" business transaction, give & take, between the builders & the men in power - government!

I am talking about - government's "cut" in the property price!

You know what? When a builder charges you Rs. 3,300 per sq.ft., the government's "cut" is, approximately, Rs. 1,087 per sq.ft. - nearly, 33%!

If, the government is 33% partner in real estate sector,
how can we expect government to control the property rates?
How can we expect government to increase 'supply of land'?

How can builders' government take any step which will make housing affordable for the urban middle class?

We have to remember that we are the 'minority' and only "tax cow" for the government.

Stamp Duty, Registration Charges, VAT & Service Tax:

We all know only about what we pay to the government when we register the agreement of our property. Stamp Duty 5% + Registration Charges Rs. 30,000 + Service Tax 2.57 % + VAT 1% = Approximately Rs. 313 per sq.ft. to the government.

"Ravi, that's not all what the government gets from every flat sold!," said Mr. Kapil Gandhi, M. D., Sigma One Landmarks Pvt. Ltd., developers of Grand Stand Kothrud and told me what government gets from the builder.

Let us assume that the 2,00,000 sq.ft. project - 11 story buildings with standard specifications & amenities - is in the D Zone, and the property rate, based on the saleable area, is Rs. 3,300 per sq.ft.

"Besides what you pay, while constructing this project, builder pays to local, state & central government, approximately Rs. 774 per sq.ft. on the saleable area!," said Mr. Kapil Gandhi and gave me the following bifurcation, based on per sq.ft. saleable area:

1) Stamp Duty on Purchase of Land - Rs. 60
2) Registration Charges for above Land - Rs. 14
3) Revenue Matters - Rs. 15
4) NA Charges - Rs. 5
5) PMC Charges & Premiums - Rs. 285
6) Octroi on Materials - Rs. 44
7) MSEB Charges - Rs. 20
8) Environment Clearance Charges - Rs. 10
9) VAT on Construction Materials - Rs. 86
10) Service Tax on Construction Labor - Rs. 57
11) Excise on Construction Materials - Rs. 111
12) Service Tax on Consultants' Fees - Rs. 10
13) Mortgage Stamp Duty on Project Loan (25% of Construction Cost) - Rs. 4
14) Property Tax on Plot for 4 Years - Rs. 12
15) Service Tax on Marketing & Promotion - Rs. 5
16) Premium on Road & Amenity Space - Rs. 38

Animal Farm:

Dear Tax Cows, now you know, why government gives free hand to the builders to abuse & exploit the property buyers and earn huge profits - sometimes, without any 'income tax on the profits'!

On our Animal Farm, builders & politicians are more equal than others and terrorist vultures are special guests!

Related Stories:

1) MONDAY, AUGUST 29, 2011

An Agreement to be a Slave of a Builder

2) THURSDAY, AUGUST 25, 2011

"I refuse to pay "legal charges" for the registration of my property agreement"


An Agreement of Your Flat -
It's not a "Sale Agreement", Baby!

4) FRIDAY, AUGUST 19, 2011

Why do we borrow at high interest rates and offer interest free funds to builders?

5) THURSDAY, AUGUST 18, 2011

Pune builders recover the cost of construction and get ready to increase the property prices!


Buy a ready possession flat until there is no real estate regulator!

7) MONDAY, JUNE 13, 2011

Is Pune real estate market about to crash?

8) TUESDAY, JUNE 21, 2011

Property Rates in Pune Real Estate Market Going Down?

9) TUESDAY, JULY 26, 2011

Flat 40 % Off!

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  1. hmmm so the govt is taking 33% of property price towards govt taxes like VAT, PMC premium etc.
    thanks mr. karandeekar for sharing.
    But how can you say that the govt is giving a free hand to the builder in abusing the tax payers, i mean do the builders or the buyers have a option by not paying the taxes ?
    I think the property buyers must make a presentation like mr gandhi's to the govt and ask the govt to rethink on their 33% taxes, if you know anyone from them !
    how you can say builders govt when the govt is elected by all.
    And how will any politician benefit by charging so much tax, and how can a builder benefit by paying so much tax !?? actually no one is benifitted, even after paying so much 33% tax, govt is not giving pot hole free roads !

    it is only that the property buyer is paying 33% to the govt via the home purchased.
    So the govt must really hard think on how to reduce the tax burden on the poor property buyer.
    Keep posting such important unknown factors !

  2. Thanks for your concern for "poor property buyers", buddy!

    Do you think that builders will reduce the property prices if government reduces the taxes?

  3. maybe if we have proper representation, like the govt has done in SEZ schemes. also every try is worth, if govt reduces the taxes and premiums for certain affordable homes, then the builder has to decrease !
    but anyways any try is worth ! just by reducing the basic stamp duty and vat etc we have to pay 300 rs less !

  4. I dont know much about tax laws. But I am certain that the numbers are exaggerated.
    Following numbers are per sq.ft.
    PMC Charges & Premiums - Rs. 285
    Stamp Duty on Purchase of Land - Rs. 60
    Can you please give breakup of PMC charges?
    How did you calculate stamp duty? what was the cost of land considered? if we consider it was 750 Rs/sq.ft. then is stamp duty really 8% of purchase cost?

  5. Dear Ajay, this is the official data of CREDAI Pune, given by Mr. Kapil Gandhi.

    Yes, you are right. I will right a blog on - 1) PMC charges 2) Land Prices 3) Construction cost & 4) Bribes builders pay

    However, Dear Ajay, land price is much more than Rs. 750 per sq. ft. in Pune real estate market.

  6. Hi Ravi
    I am not sure about exact numbers and all about the taxes, but other than taxes do you think "holding capacity" of developers is also playing a big part in keeping the prices high?

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