Chennai: Challenges posed by the Goods and Services Tax (GST) has hit joint development (JD) launches in FY18, even as share of real estate projects launched under the model has increased significantly over the years, a report said.
According to ratings agency Icra, the imposition of GST has resulted in decline in the proportion on year-on-year basis from 93 per cent in FY17 to 71 per cent in FY18. In 2016 it was at 72 per cent.
A study of 196 projects launched revealed that on an average, around 55 per cent of the projects launched per year during the period FY13-FY15 were under the JD model.
“The developments were initially more concentrated in Bengaluru, with city-based developers using the JD model extensively initially. However, in the build-up to the RERA, which largely got implemented from 1 July, 2017, the proportion of the JD launches started increasing, and the trend began spreading into other cities on a pan-India basis,” Icra said.
Under the JD model, the owner of a land parcel and a developer jointly undertake the development of a real estate project. Under GST, the land owner has to transfer the development rights on the land to the developer, who is deemed to provide construction services to the former.
“The y-o-y decline witnessed in the proportion of launches in FY18 was possibly due to challenges posed by the applicability of the GST on the JD models,” it said.
Since these are treated as a continuous supply of services, tax is levied accordingly at 18 per cent, with input credit being available if the units are sold to end-customers during the construction phase.
Icra, however, expects the proportion of this development model is likely to increase to nearly 76 per cent in the current fiscal.