Rollover of capital gains is big boost for Real Estate: Karle Group CFO

Chennai: The real estate sector reeling under the effects of government measures like GST and RERA has impacted the business of small players heavily. However, big real estate businesses have found the government’s moves quite to their advantage.

Speaking to News Today, Karle Group CFO Gururaj Bhat talked how such implementations have turned out to be fruitful for them and property buyers.

Here is what he had to say:
Q: What is the impact of GST today in RE sector, considering it caused a slump at the time of introduction?
A: GST has proven to be a boon to home buyers, despite having faced teething problems in the initial stages. The slump in the initial stages was mainly due to incorrect notions and assumptions. End users of GST did not understand its benefits in streamlining the system and therefore there was a natural resistance to it that led to the slump in the sector. But today, with a better understanding of what GST entails and how it is beneficial to both the builders, developers and the buyers, everyone can see GST is actually a boon.
Q: How is the single tax system advantageous?
A: GST has replaced different taxes like excise duty, service tax, VAT, etc, which were numerous and incomprehensible to the common man.  Earlier, some of the indirect tax components like excise duty and service tax paid at some stages were not available for input tax credit. For example, the excise duty paid on purchase of steel and cement were treated as an expenditure in the books of the developer, whereas now, GST allows each person involved in the chain of operation to take credit of such taxes paid. Input credit will result in the passing-on of benefits by the developers to the home buyers, bringing down the cost of a property.
Q: How do you look at the 7 per cent GST cut in the sector?
A: Residential real estate sector has received a boost through the reduction of GST from 12 per cent to 5 per cent. Despite a 7 per cent cut,  the consumer’s benefit will only be between 3 per cent to 5 per cent. This is primarily due to the denial of input tax credit to the developer. The benefit of GST reduction, however, will be substantial for residential developments in central business districts where the land cost is significantly higher.
Q: How’s the response to luxury apartment market like your Karle Town centre?
A: The luxury real estate sector across markets including that of Chennai remains unaffected and continues to show a positive growth trend. This is mainly because the luxury real estate consumer is discerning and seeks quality by way of artistic value and high end product features. Our project Karle Town Centre in Bangalore is one such that is a benchmark for luxury, innovative design and distinct product offerings across residential, commercial and retail, all developed in our township in Hebbal, North Bengaluru. Such self-sustained development in strategic locations in any city will withstand market fluctuations. Projects such as ours which is strategically located between city centre and the upcoming aerotropolis around airports, will outperform other standalone projects in terms of appreciation.
Q: What’s your take on the union budget?
A: While RERA brought in processes to protect home buyers and streamline investments, the budget has measures to largely benefit developers and builders thereby making it a progressive one. The extended tax years on deemed rental income from unsold inventory of residential apartments remaining in the hands of developers will definitely lessen the tax burden on builders and will be a morale booster for developers holding unsold stock of apartments in a sluggish market. Recommendation to reduce GST from the existing 12 per cent will improve the buying power of consumers. The capital gains from the sale of old residential property can now be used to purchase up to two new properties instead of just the one, as was earlier. The rollover benefit will now be applicable to capital gains of up to Rs 2 crore. This means a home buyer can now reside in one of the two houses while the other one can be let out for rent which will earn him income. Now buyers will now consider investing in two houses to save taxes on capital gains and this will boost sales in residential real estate sector.