By Vibha Singh, Jun 10 2017 : The Times of India (Mumbai)

The Brihanmumbai Municipal Corporation (BMC) is expected to reduce a few charges and penalties that have been levied upon the builders to counter the slowdown in the real estate sector.

A STEP TOWARDS REVIVAL  - real estate sector of Mumbai

In a bid to tackle the prolonged slowdown in the real estate sector of Mumbai, the Brihanmumbai Municipal Corporation (BMC) is expected to reduce some charges and penalties levied upon the builders. This move is expected to bring some relief to the developers, who have been burdened with exponential charges and premiums in the last five years.In a meeting with the Maharashtra Chamber of Housing Industry (MCHI), the civic body is planning to reduce the rising project costs for builders, by cutting down on components such as land under-construction rates and some premiums. Dharmesh Jain, chairman, MCHI says, “We had been requesting the BMC to reduce the charges and the premiums, which are too high and need to be re-looked at. We had a dialogue on it and will continue to work together. Taxation has become unbearable for the industry; which is why there is a need to re-asses these taxes. The problem that lies with real estate is that you get taxed by the central government, state government as well as urban local bodies.And all three when combined, considerably impact the overall cost.”

ISSUES OF CONCERN:

When the property is under-construction, the developer has to pay the Land Under-Construction (LUC) tax, which used to be nominal; however, through the years, it has increased substantially. Also today, there are many buildings whose Occupation Certificates (OC) are pending. The reason is that many house owners make minor alterations for their personal needs and then when developers apply for an OC, those alterations are looked at as violations. This is why the OC is then withheld.

MCHI has proposed that minor alterations should be ignored and it is preparing a list where they would define the percentage of minor variations too.

Sukhraj Nahar, chairman and MD of Nahar Group says, “The cutting down of components such as under-construction land rates and reduction of the rising project costs and some premiums, will surely help the real estate sector grow. This will realign the taxes and make houses more affordable. Reducing some charges and penalties will also help the builders who are sitting on empty land and delaying construction. Currently, the tax is higher than the property tax levied after the development of the plot, which makes it difficult for the builder to set affordable rates for the flats. Currently, the BMC imposes 70 per cent of the Ready Reckoner (RR) rate of the land in case of un-authorised construction.However, smaller penalties or other measures can be considered when the customer makes interior alterations, leading to a violation.“

Discussions were held on certain kinds of premiums charged on open spaces and elevators too. There is a deficiency of open spaces and as a result, the civic body was charging a premium. However, developers would prefer that wherever there is a premium of FSI that is being charged, the authorities must not charge a separate premium for deficiency of open spaces.

WHAT CHANGES ARE EXPECTED TO BE MADE?

Keeping in mind the concerns of the city’s builders regarding the rising project costs, senior civic officials mentioned that they are considering lessening the taxation on LUC. Also, measures are being adopted to figure out a way of reducing the penalties linked with construction beyond the approved dimensions. Currently, heavy penalties are charged under three categories.

While construction work done without approved plans will amount to a penalty, which is 70 per cent of RR rate of the land, work carried out beyond the dimensions approved by the Commencement Certificate (CC) will attract a fine, which is 20 per cent of the RR rate and the fine for work carried out after a `stop work’ notice has been issued, is 40 per cent of the RR rates.

The BMC will try to reduce the costs of premiums that a builder needs to acquire for any project.Premiums are charged for the staircase, lift and lobby area, (which are free of FSI) as well as open space deficiency. Among the expensive premiums, for fungible FSI, while the rate for residential projects is 60 per cent of RR rate, for commercial properties, the rate is 100 per cent of RR rate.

HOW WILL THIS HELP?

With heavy penalties levied, cost cutbacks became difficult and the expenses would generate considerable financial distress. A reduction in the rates will positively aid developers to overcome monetary difficulties as more transactions would take place.

According to Rohit Poddar, MD, Poddar Housing and Development, “Already, there are fewer transactions and registrations taking place, which is affecting the collections of the BMC and other government departments. Property prices have been stressed and a lot is being done on the regulatory front including RERA and GST to create a transparent and predictable environment. In this context, it is a logical extension for the BMC to also become transparent and act as an enabler by reducing the charges and penalties. The need of the hour is to reduce red tapism and this is a good step.”

Shubika Bilkha, business head, The Real Estate Management Institute (REMI) agrees and adds, “Charges that increase the project costs include LUC rates and other premiums. These have seen a significant increase over the last five years. In a tepid sales environment and with real estate companies currently investing resources in aligning their business practices in line with the stipulations of RERA, any relief that the BMC could offer them would be most welcome. In an expensive real estate market such as Mumbai, any reduction in the cost of construction that could result in greater affordability would benefit even the end-consumer.”

Publications / Source : The Times Group