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8-10% of GST with Input Tax Credit is good for the Real Estate market

8-10% of GST with Input Tax Credit is good for the Real Estate market
Gautam Thapar, CEO, Thapar Builder, realtymyths

Gautam Thapar, CEO, Thapar Builder

Along with other industries in the economy, real estate is one such sector that monitors the general elections very cautiously. As an impact, the developers avoid doing any new launch and the buyers go into the wait and watch mode. As India is going through the general elections, the real estate sector has come to a virtual standstill. We tried to find out the reasons from Mr. Gautam Thapar, CEO, Thapar Builder Pvt. Ltd., during our conversation. We talked about various policies by the Modi Government and their impact. We also discussed the possible way forward for the industry. Here are the excerpts of the interview.

RM: It is a general trend that sales during elections go down. Why does this happen? Should buyers wait for the new government and policies or go ahead with their decision to buy the property? Are you experiencing such slump in sales inquiries at your project?

GT: Very much! Government plays an important role in buyers’ purchasing decision. Above that, every new government brings in new schemes, offers, and policies which may or may not be conducive for real estate investments. Just like the BJP government brought the RERA Act, GST Compliance, Benami Law, and the likes which led to a major breakthrough and standardization in one of the most disorganized industry. Hence, it is always advisable to adopt a wait-and-watch approach, let the new reforms set in place before they make their buying decision.

Although there are a dozen inquiries till now, buyers are on the edge of making their decision, mostly because of their expectations from the government.

RM: The real estate sector desperately needed policy reforms to bring much-needed transparency. Do you think the steps taken by the Modi government in the last 5 years could achieve some success in this front? What, in your opinion, are the tasks in hand for the new government?

GT: Frankly, the entire real-estate sector has become more buyer-friendly in the last four years. The BJP government has set benchmark worthy reforms that have transformed as well as organized this sector, making it transparent, pocket and customer-friendly. Real-estate had a lot of loopholes before, starting from inflating prices to lack of regulation. With reforms and policies such as GST, RERA, Benami Transaction Law, and Insolvency Proceedings, housing has become affordable for all.

For example, GST has helped the common man by eliminating multiple taxations and zero tax on fully-furnished homes. All these pro-consumer reforms have aided the common people to realize their dreams as well as served as a warning for the builders who enjoyed malpractices in the name of the profession.

RM: GST indeed, has eased out the duplication of taxes in the real estate sector. However, developers are demanding a further revision of the rate. Do you think it is required? What should be the correct rate bracket, with and without ITC?

GT: I personally feel that GST is a great step in neutralizing the excess amount of taxes that were earlier levied on developers in the construction of a project, ranging from 18 to 24 percent. But if we look at the hindsight of removing input tax credit, it will pressurize developers’ margin and also impact the pricing of properties.

Instead, the government should bring the input tax credit to the developers and they should pass the benefit to the buyers in order to make a successful deal. And the ideal rate should be 8-10 percent along with input tax credit. Moreover, central as well as the state government should bring down, at least, the stamp duty tax to revive the market scenario.

It is a known fact that real estate is a huge source of employment in our country and one of the major contributor to GDP as well. In order to make it more concrete, the government should ensure that the development authorities issue sanction plans and occupation certificates required to start and handover the project on time. And there is a serious need for a clearance window in order to initiate the required clearances before starting any construction project.

RM: As per some of the research reports, the commercial real estate is showing an upward trend in metros, tier 1 and 2 cities. Do you think commercial is the new trend? Do you think the government, the way it boosted affordable housing, should bring some reforms for commercial real estate, and what?

GT: Growing commercial real estate is directly related to the growth of the economy. It is a great indicator of how multinational companies are attracted to India and how they want to open their offices here. There is a constant high demand for good office real estate assets, owing to the rapid employment generation and REIT listings. Also, properties in well-located residential catchments are generating the sort of steady and dependable ROI for realtors so as to meet the needs of the people living nearby.

RM: Funding in real estate, after the IL&FS fiasco and even before, has been an issue. Your company is also into real estate funding. Tell us more about that. Do you think the government should come forward to ease out the fund crunch, and how?

GT: Real estate funding is facing a real-time demand crunch as the supply becomes abundant. The sector is grappling with multiple issues following the IL & FS fiasco. There is a high cost of capital and a number of stalled projects following the payment default. Hence, its time the government should step in with the correct measures and revive the industry.

I think, there should be a stress fund or an asset reconstruction agency which can put funds to revive the industry and complete the stalled projects. The legal course might take years before the buyers could see their money coming back from the builders. And, due to high GST rates, customers moved towards ready-to-move properties in 2018, which is an exemption. Hence, the government needs to implement some favorable measures now in 2019.

RM: Tell us more about the group, its various services, and your project The Arthah.

GT: We are into real estate development since 1983 providing services ranging from residential, commercial, to group housing projects. In the past, we have created a large number of affordable luxury residential property spaces and also deal in catering to rental space now.
The Arthah is our marquee project, the first ever 26- story residential complex in Vaishali, Ghaziabad designed to contain 116 units for group housing, of which 84 are 3BHK apartments for purchase, while the remaining 48 units are serviced studios, 1BHK, and 2BHK apartments.

RM: You are currently operating in the NCR, primarily Ghaziabad. Do you plan any expansion of your operations this year? What kind of growth you forecast for your company, and the real estate sector as a whole?

GT: We believe in offering our customers with an array of choices, so, yes, we are actively looking for opportunities to grow through joint ventures and direct allotments around Noida, Greater Noida, Ghaziabad, and even Dwarka in West Delhi. We are also looking at creating residential as well as commercial spaces around Sohna Raod in Gurgaon.

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