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Developers from Mumbai have been issuing occupation certificates (OCs) instead of building completion certificates (BCCs). According to the new budgetary provisions, occupants who do not possess BCCs will have to pay a service tax of 10% throughout the life span of such properties
The service tax provisions in the Budget affecting the realty sector have sparked off a lot of debate in the industry. One of the obscure clauses stated in the service tax announcement is that occupants of developed properties have to possess a building completion certificate (BCC), failing which such properties would be considered as ‘properties under development’ and their occupants will have to pay a service tax of 10% throughout the life of the said property.
However, this provision can have major consequences for the Mumbai realty market. Under conditions of anonymity, a person familiar with the situation told Moneylife that around 90% of the structures in Mumbai do not posses a BCC. After the new clause in the Budget, the occupant will now have to possess a BCC.
According to industry sources, developers have been issuing occupation certificates (OCs) to buyers instead of BCCs. Developers find it easy to procure the OC rather than spend a huge amount to get a BCC from the authorities. The OC is issued when developers receive civic permission for water connections and sewage facilities. Many developers do not even try to procure BCCs, revealed other source.
In his Budget proposals, the finance minister had said: “In the ‘Construction of complex service’, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly.”
This means a property would be deemed ‘under construction’ and would be a taxable service if there is no BCC issued by the concerned regulatory authority, which in most cases is the resident municipal authority (in Mumbai, this body is the Brihanmumbai Municipal Corp or BMC).
However, this new service tax clause may encourage more cash transactions in the realty industry, because developers will have to shell out greater amounts to procure a BCC.
According to a developer, there is no specific definition on what constitutes ‘completion’ of a property. Every state has a different definition of ‘completion’.
"Many builders find it difficult to comply with certain conditions (laid down by the designated civic authority), so they do not bother about the BCC once they procure the OC. The authorities issue the OC only when the property is fit for occupancy. Later nobody really bothers about the BCC," added other developer.
To top it all, a few developers are getting away without even procuring OCs, says a source from a leading bank.
Though the bank did not give any reason for the rate hike, industry experts said that the rate increase was largely prompted by signals communicated by the RBI in its latest monetary policy review
In a clear signal heralding a rising interest rate regime, the country's largest private sector lender, ICICI Bank Ltd, on Thursday has withdrawn its 8.25% special home-loan scheme and hiked its auto-loan rates by up to 0.5%, reports PTI.
"Auto loans rack rates have been raised by 0.25%-0.5% depending on (the) segment and tenor with effect from 5th March," an ICICI Bank spokesperson said.
Though the bank did not give any reason for the rate hike, industry experts said that the rate increase was largely prompted by signals communicated by the Reserve Bank of India (RBI) in its last monetary policy review.
With a view to mop up excess liquidity from the system, the RBI had hiked the cash reserve ratio or the amount banks have to park with the central bank by 0.75% to 5.75%, absorbing Rs36,000 crore from the system.
ICICI Bank also withdrew its special home-loan scheme, under which it offered home loans for 8.25% fixed rate for two years, effective from 1st March, the spokesperson added. Following the hike, ICICI Bank's interest rates for new auto loans will be in the range of 9.75%-11%.
The bank is currently offering home loans for up to Rs30 lakh at 8.75%; loans between Rs30-lakh to Rs50 lakh at 9% and those above Rs50 lakh at 9.5%.
Another private sector lender, Kotak Mahindra Bank and the group's car-loan financing arm also announced hikes in their home and car-loan rates respectively.
While Kotak Mahindra Bank has hiked its home-loan rates by 0.25%-0.5% with effect from 18th February, Kotak Mahindra Prime (KMP), which is the dedicated car-financing arm of the group, has hiked its loan rates by 0.5%-0.75%.
"We decided to hike the interest rates for home loans by 0.25%-0.5%. This is primarily to align lending rates in line with the cost of deposits," Kotak Mahindra Bank's head of retail assets, Kamalesh Rao, said.
The bank's home-loan portfolio grew by 50% in the current year, he said. KMP chief executive Sumit Bali said that the hike in lending rates will come into effect from 8th March.
"We are hiking the lending rates as the cost of funds has gone up by up to 0.75%. We have to pass on this additional cost to customers, which we didn't do last month" Mr Bali said.
KMP has a total loan-book of around Rs6,500 crore, which grew by around 35% in the current financial year. Moving ahead, the company expects a loan growth in the range of 15%-20%, Mr Bali added.
NMDC officials expect a rise in iron ore prices in 2010-11. Chinese inventories which are piling up will not be a concern, claim company executives
Company officials from state-run National Mineral Development Corp (NMDC) expect long-term global and domestic iron ore prices to rise in 2010-2011. While the company admits that Chinese inventories are piling up, it claims that this will not affect the iron ore business in India.
“Overall, we are expecting a rise in prices. Long-term prices are based on spot prices. Spot prices are currently high. Globally, there is a general understanding that there will be a jump in the long-term prices during FY11,” said Rana Som, chairman and managing director, NMDC.
On being asked to put a figure on the expected rise in iron ore prices, Mr Som said, “What would be the rise is anybody’s guess; some predict it could be 30% or 40%”. He also added that this rise in global iron ore prices will surely reflect on the long-term domestic prices.
Interestingly, NMDC officials do not expect the large amount of Chinese inventories to be a serious concern. “Chinese inventories are piling up, but China is also quite ambitious in its steel production plans. They are trying to go beyond 800 million tonnes (MT) and their appetite for iron ore is insatiable. India has been exporting just about 100MT to China and that will continue,” said Mr Som.
Most of the long-term contacts that NMDC has inked with its clients will end by March 2010 and the company expects positive price realisation in the new contracts that will be signed.
NMDC—which has announced its follow-on public offer (FPO)—is planning to increase its iron ore capacity to 50MT by 2015. The company’s total iron ore production during FY09 was 28.52MT. In line with its planned expansion plan, the company plans to acquire four mines in the next financial year. Two of these mines would be in Jharkhand, one in Karnataka and one in Chhattisgarh, which would be the captive mine for the company’s steel plant.
NMDC also plans to diversify into other minerals—coal and phosphate are under consideration. The entity, in collaboration with Coal India Ltd (CIL), plans to jointly acquire coal assets both in domestic and global destinations.