Editorial: Being a Builder

By Dr Sanjay Chaturvedi, LLB, PhD

Being a builder is one of the toughest task to be in business. Gone are the days when the advances from customers and investors were waiting in ques to invest in project which are just on papers. Till 2007, real estate projects were announced on brochers and by phone calls. Permissions were readily available. I have seen permission files lying on builder’s table and it was architects who use to decide the elevations.

Builder use to pay just a token to land lord and get the DA registered without paying any Stamp Duty of GST. Many landlords were satisfied by giving some share in the profit or space. The real Real Estate industry started with establishment of HUDCO in 1970. The first real estate business deal took place in 1967 by Rahejas. After HUDCO came in to fund construction finance, HDFC was established in 1977 for home loan in the country. The concept of purchasing real estate from builders were started in 1980s.

Many reputed builders started as brokers. They were to stand at Dalal Street near Gundecha Chambers and do the brokerage of large land. The concept of TDR started in 1991 with first DCR of Mumbai. There were very less taxation as far as the project starting is concern. Development Agreement were not subject to Stamp Duty and any type of VAT, Service Tax or GST. Builder use to take advances from customers and investors. Mere allotment letters were issued in lieu of booking. Although MOFA was in place but Agreement for Sale was mere a formality.

State of Maharashtra recognised the investors and gave a set back relief to investors in paying Stamp Duty and setting off within a year if resold. Income Tax TDS on payment to builder were not there and buyer never deducted TDS while paying to builder.

There was no tax on transactions, development or premiums on FSI till 2007. ERA of Taxation and regulation on Real Estate started in 2007 onwards. TDR on market rates were readily available, there was no compulsion to buy from government.

A builder needs to pay stamp duty and GST on Development Agreement. Or if he is paying rent to society members then also he needs to pay stamp duty and GST on DA, conveyance etc. Every rupee he is getting from customers are subject to TDS. So government is taking its share before builder could make a profit or loss. There are 56 NOCs of local self government besides fire NOC, Traffic NOC, Tree authority NOC, Airport Authority NOC, Defense NOC, Coastal Zone NOCs, permissions from society members for redevelopment, litigation on land and projects. Pay income tax to government, pay interest on fund borrowed for constructions, pay bribes, pay goodwill money to society office bearers, pay advances to contractors, and pay salary to the operational staff like admin, HR, sales, finance, legal etc till the project is completed. The customers will pay him only when he raises a demand as per the Agreement for Sale and according to slab ad schedule thereof. He has to put his own money to complete the slab and then raise the money.

He is subject to more than 100 Acts and regulations like RERA, Indian Contract Act, MOFA or State Acts, Society Acts, GST, Benami Property Act, Income Tax, FEMA, Arbitration Act, Companies Act and its compliance, Consumer Act, Development Control Regulations. Indian Registration Act, State Stamp Duty Act, CRZ Rules, Forest Act, Environment Act and various permissions, SEBI Act, ULC Act, State Housing Acts etc.

Every Act and its compliance makes things worst for him to build wealth for the nation. Every brick he lay is foundation for next generation and creation of assets. Being largest employer after agriculture and prominent contributor to GDP, still not an industry. No ministry will tell the statistics on real estate. No one knows how much short we are to accommodate the inclusive growth and migratory trend of young generation within the country. No budget or government policy recognise a plight of a builder. A certain expenses of interest mounting on unsold inventory in slow down and lock downs, where as the financiers are not waiving off any penny of interest whatsoever, getting every stimulus packages from exchequers. Reduce the price they say, but at what cost? Being Builder is tough in the era of ease of doing business.