TENANTS OF CESSED BUILDINGS IN MUMBAI INSURED FOR Rs. 5 LAKHS PER FAMILY

One more illusory proposal from the PANDORA BOX of the State Government is in offing and shortly is claimed to be implemented.

The State Government is suddenly concerned about the thousands of families residing in an unsafe cessed structures who lose member/s due to a collapse and therefore, is mulling miraculous proposal that the precious lives of tenants living in such wrecked buildings in Mumbai would be covered by an insurance scheme to the extent of Rs 5 lakhs per family as declared in the Legislative Council on Friday, the 2nd August, 2013.

The Government is of the opinion that these cessed buildings pay tax (cess) for maintenance and repair and hence, in turn, it is desired that their lives should be protected by providing insurance cover to those families staying there.

The Government Resolution (GR) has been issued for effective execution of this scheme. There are more than 16,000 cessed buildings which are in dilapidated condition. Over 15 lakhs people will get benefit of this insurance scheme.

The insurance scheme will be funded by the Mumbai Buildings Repairs and Reconstruction Board whose budget has been scaled up to (only!) Rs 200 crore.

However, it is a matter of fact that even today; many old buildings require urgent repair, could not be repaired due to paucity of fund. The scheme claims that if the building collapses, each occupant family will get Rs 5 lakhs.

The Government asserts that to generate more revenue, it had modified some Rules and Regulations on Land Lease, FSI, Public Parking Policy, etc, which earned it between Rs 1,500 to Rs 2,000 Crore. A million dollar question is whether such revenue would be effectively generated to suffice the promise?    

Currently, the Government offers only Rs 1 lakh compensation from the CM's relief fund to the families of building crash victims. However, it is not known as to after how much delay these monies are distributed. According to the State Housing Department Officials, the scheme could be extended to the Mumbai Metropolitan Region (MMR) in future.

The new surrogate scheme appears to be replacing an indistinct and ambiguous policy for compensation, which is currently in place, for those structures that collapse. It is believed that this scheme is nothing but jugglery of ornamental and well orchestrated words and it is not the ultimate solution to the problem of old and dilapidated buildings.  

The State Government has been pulling all stops to facilitate quick redevelopment of such cessed buildings, repair and reconstruction of old cessed buildings. The government recently announced a uniform floor space index of 3 irrespective of any of the A, B or C categories of buildings.

The announcement from the State Government has rolled up widespread criticism in various circles that it has dejectedly failed to prevent building collapses in Mumbai.

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CAPITAL BASED TEXATION TO CRUCIFY PROPERTY OWNERS IN MUMBAI

The most horrendous blow from BMC on the face of flat owners in Mumbai has forced the Property Owners' Association to seek justice through the Mumbai High Court against the nuisance of change in policy of imposing property tax in Mumbai and its suburbs with retrospective effect.

The new capital value-based property tax system that came into effect from April 2010 will distress more than two lakh self-occupied, leased and vacant properties in the city. The civic authority has extended the deadline for paying the taxes to June 30, 2013.

It is transpired that the main object of the capital value system is to remove the tax disparity between old and new properties. The flat owners will be able to calculate property tax on their own and check if the BMC has sent them the correct bill and if not, they may have to spend better time of their life in offices of BMC for redressal of their complaints.

The new system is based on market values of the year 2010 fixed by Govt. of Maharashtra only and it is claimed that the value will not change for the next five years.

Capital value will be worked out as per rates given in the Stamp Duty Ready Reckoner and Market Value of Properties in Mumbai 2010 for all the properties constructed as on 31-12-2010. Buildings constructed during 2011 and 2012 will be valued as per Ready Reckoner of that year.

The property tax will be the same whether it is owner occupied or given on leave and license or rent. Presently the rented properties which attract higher taxes will be re-worked out as if it is owner occupied as on 31-03-2010 and will be taxed accordingly. Excess tax charged will be refunded.

According to the revised system, the property tax on residences will be calculated ON BUILT UP AREA at 0.41% of its capital value. For offices, the tax will be at 1.95% of the capital value and for banks, it's at 3.91%. The new tax will be calculated on the basis of the current market value or capital value of the property based on factors, like age, price, location, and type of property. Properties have been classified in four groups i.e. open land, residential, shop including commercial and industrial.

One can imagine the ‘legendary’ efficacy of BMC while working out these factors for each property and assess the tax. However, the BMC foolishly claims total rationalization of the system and that the new system is more transparent leaving no discretionary power to the assessing officer to favour any property owner. 

Members of most housing societies are burdened since the civic authority has already raised bills from January, 2013 demanding tax arrears for the past three years. Presently the corporation has sent the provisional bills as per rateable value system only, whereby after fixation of capital value and issue of the final bills, if the amount paid is more than the final bill, the same will be refunded with interest at 6.25% per annum and if the amount paid is less than the final bill, the same will be recovered from the taxpayer.

The new system will also have its impact on property redevelopment activities. The civic authorities have yet to realize that the rate of tax and capital value of the new and redeveloped buildings also needs to restrict in line with old buildings.

Apart from the property tax recovered by the corporation, there are state education cess, employment guarantee cess, repair cess and tax on building having area more than 125 sq meters, which will be charged separately as per rateable value system only. This is because these taxes are not switched over to capital value system by amending relevant acts.

The Maharashtra Ownership Flats Act (MOFA) states that developers should sell properties on a carpet-area basis. Contrary to this, the greedy BMC has charged the tax under new system on the built-up area which includes stilt, porches and AC plant room also.

Tax will be charged on the built up area of each unit plus common area of the building enjoyed by all the members, on pro rata basis. Actual built up area will be measured on the site. In case of old properties carpet area + 20% will be accepted as built up area. Residential units up to 500 sq ft carpet area will pay the same old tax.

Residential units more than 500 sq ft carpet area will pay two times of the old tax plus tax on common area on pro rata basis or tax as worked out on capital value system, whichever is less. The non-residential units will pay three times of their existing tax plus tax on common area or tax as worked out on capital value system, whichever is less. The tax bill has to be paid on time, failing which it will attract penalty at the rate of 2% per month on the due amount.

The market values given in the Ready Reckoner will hold good for all the properties in Mumbai existing as on 31-12-2010. However old properties will qualify some depreciation. Redeveloped new buildings will be treated as new structure and will be valued accordingly.

Once the property tax is fixed, it will not be revised for five years. After five years increase will be ‘generously’ restricted to 40% only.

A flat of 3000 sq ft at Cuffe Parade which is 40 years old paying property tax Rs.750 per month only will now pay Rs. 1500 only, where as a new building next to it will pay property tax more than Rs.30000/- per month with blessings of BMC to be an architect of gigantic disparity in the present system.

Each owner of the unit will receive individual bill which he will directly pay to the corporation like electric, telephone and gas bills. However this service initially will be available only to those societies which are not in arrears of property tax.

The Capital value is reckoned as Base value x Built up area x User category x Nature and type of building x Age factor x Floor factor. Property tax = Capital value x Rate of tax.

Before the new system of charging tax on capital value introduced, the MCGM had adopted rateable value system to charge property tax to property owners in the limits of MCGM

Applicable Tax Rate was based on the use of property i.e. residential or non residential and was applicable on the net rateable value arrived for particular property.

Method of Assessment & calculating Rateable Value of the Buildings and Lands:

Rateable Value of any Building or Land assessable to Property Taxes was determined as per the provisions of Section 154 of MMC Act. Rateable value of any building or land was determined by allowing 10% statutory deduction in lieu of all allowances for repairs or any other account whatever from the annual rent of such building or land for which such building or land was reasonably expected to let from year to year.

Net Rateable Value = (Rent per month X 12) Less 10% Statutory Deductions.

As observed by the MCHM, at present, the concept of construction of the Building for letting to the tenants not found in general. Normally all the properties are constructed for the purpose of occupation of individual owner.

In the past due to Rent Control Act, the standard rent were fixed for the protected tenant and hence, the rateable value arrived based on the above formula was frozen. However, to meet increased expenditure in budget due to year on year rising costs and various expansions, MCGM was left with no option but to increase tax rate applicable on the net rateable value. Due to this problem, the tax rate increased to as high as approximately 86.5% for residential building and 112.5% for non residential building.

This created another issue where in property actually leased to a tenant with lease agreement in place. Hence rateable value was arrived based on the actual passing on rent less 10% standard deduction and tax to be 112.5% of 90% annual rent i.e. Net Rateable Value. In this scenario tax was even more then the rent income.

Therefore, the department demarked the pockets of locality in every Ward and provided ‘Residential Letting Rates for each Pocket’ to arrive at the Annual Rent at which the building was reasonably expected to be let from year to year and considering ‘Residential Letting Rate’, the Annual Rent and Rateable Value of the property was fixed.

The housing society on its own should first get each and every flat meticulously measured from wall-to-wall to ascertain the actual carpet area. For once, the society will be able to ascertain the exact square feet area of each flat, as in most cases, the areas mentioned are the old/initial original areas taken from the original MCGM building approvals.

It is noticed, in many cases members have subsequently not obtained mandatory permission either from the society and/or MCGM approvals for extending or covering balconies/galleries or for breaking down internal walls, all these resulting into increasing the basic sanctioned floor area. Some have been putting residential areas to commercial use. Most of these aberrations that are not even within the knowledge and consent of the society can now be rectified as a result of this exercise.

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REALTY REGULATORY BILL 2013 - SUCCESS UNDER SUSPICION 

The much awaited Real Estate (Regulation and Development) Bill has been cleared by Union Cabinet on June 4, 2013. It is weightily claimed that this Bill has been prefigured as a move in favour of buyers of properties. The Bill has been in the offing for more than six years and now is entailing serious concern of the Government in to making it a law.

There are factors of significant importance in this Bill such as the Real Estate Developers can launch new projects only once all the relevant permissions are procured and that all such permissions and sanctions are to be displayed on the website of the Developers and only then the construction can commence. The Bill further envisages that if the promised property is not delivered on time, the buyer shall be entitled to a full refund along with interest on the amount so paid.

The Developers shall have to maintain separate Bank Accounts for every project and have to ensure that the money taken from buyers is used only for that particular project and the said money is not diverted in any of their other projects. While advertising also, the Developers will have to publish photographs of the actual site of the proposed project and any violation of these provisions shall attract penalty.

The Bill also provides provision to establish a Central Appellate Tribunal and every State Government shall be responsible for establishing the State Level Regulators. Further, the Bill prohibits the Developers from accepting more than 10% advance from the property buyers without an agreement. It is stupidly “presumed” by policy making stalwarts of that this provision will help to hold back the amount of black money that is pumped into Real Estate Industry.

The Government is rather keen to ensure that all these rigorous provisions will help the buyers. However, it has to be a “Wait & Watch” stance for a common man as to how far these rules will help them in buying a “Dream House” as there are many a slips between the cup and the lip while dealing with the lobby of nefarious and cheat Developers.

The Bill shall be applicable only to new Real Estate Projects
as and when it becomes an Act. Hence, the projects already been launched, will not come under the regime of the Act. This means that the Real Estate Projects which have been delayed will continue to hang the buyers to face problems.

The recent past has seen Real Estate Developers launching more and more new projects like filling up their plates more than required to garner more and more profits and use the money thus raised to pay off their past loans. This has led to a situation where there is no money left to build the projects which have been launched.

In order to get the money required to build these projects, newer projects are launched. This modus operandi has led to a situation where projects are rarely delivered on time and are endlessly delayed keeping the buyers in lurch. There is no relief in the Bill for the buyers who are misfortune on account of delayed projects.

Developers will have to sell property based on the carpet area whereas, according to the Income Tax Act, a built-up area for any realty project includes thicknesses of walls of that building but, carpet area does not include wall’s thicknesses. Given this confusion on the definition of carpet area, measurements should have been given based on the built-up area than carpet area.

One of the key negative factors of this Bill like any other Bill is that it will have a cost push effect i.e. the realty prices will rise by another 30 to 40%. Also, if premises are sold on super built-up area or carpet area basis, even if the total value remains the same, on a square foot basis the cost for sure, will go up.

Introducing a regulator in every State is a long-term process since it calls for the recruitment of a lot of staff who are in the knowledge of integrated and specific real estate regulations. The question is whether are there enough such personnel available?

In India, any regulator introduced, takes time to become effective. Take the case of the Securities and Exchange Board of India (SEBI), the Stock Market Regulator, which was established in 1988 and given statutory powers in the 1992 after the Harshad Mehta scam.

It is established fact that even stringent regulators don’t stand much of a chance against large established business groups of realtors as real estate regulators cannot go against Real Estate Developers, who are known to be operators for politicians and underworld dons?

Then there is the question of whether the regulator will act in favour of buyers of premises like the insurance regulator which over the years has invariably acted more in favour of insurance companies than thought about people who buy insurance.

The implementation of the said bill will also be an upheaval task for all concerned. A major point in the Bill is that the Developers will have to open separate bank account for each project and ensure that the money from the buyers goes into that particular project and not diverted elsewhere, as is the case currently in the realty industry resulting in inordinate delay in completion of projects. Of course, on paper, this is probably the most important point in the Bill.

The Himalayan question is who will ensure and keep vigil that the money is pumped to the intended project and is not being used to by the Developer to meet other obligations or simply being siphoned off.

The State Level Real Estate Regulators must have to be vigilant at such a micro level. It is uncertain that they will have the required expertise as the implementation of laws which has never been executed strongly in India and with its Indians.

It is pertinent to mention here that the above provision in the Bill has been considerably diluted over a passage of time i.e. as compared to the initial version, the anti-fund-diversion provisions of the Bill has been weakened.

In the 2009 draft, all the funds collected from the buyers were to be kept in a separate bank account and from which 100% money could be drawn only for the use of that project only. This has been diluted and the current version of the Bill which shall now allow the Developers to push only 70% of the money collected for the relevant project and rest of 30% of the money shall be siphoned elsewhere. The logic behind this relaxation can very well be spelt that the Government wants avenues to be kept opened to favour the Developers for the discernible reasons.

Prevent black money transactions in realty is a fairy tale. It is stressed that the Bill does not allow Developers to accept more than 10% advance from the buyers without a written agreement to help in controlling black money. This is a joke of the top lunatic of our country. Has any agreement prevented Indians from transacting in black money? Scores of Developers across this country continue charging money in black separately for car parking, loading over the sale area, pocket terrace etc despite there being a Supreme Court order against the same.

The Bill also says that buyers will be entitled to a full refund along with interest if the Developer does not deliver the project on time. This may not be of much help because even with the compensation in form of interest which joyfully the Developer shall offer, the buyer may not be able to buy a home. There are dishonest and nasty Developers who deliberately delay the projects and then offer meagre interest on refund of money to buyers and grab their flats to sell at a higher price since the home prices may have raised in the meanwhile manifold. Also, after a project is delayed, you cannot expect the buyer to put money in a fresh project, which again promises the project to deliver a few years later with delay, like the former Developer did.

Buying a fully ready home may turn out to be expensive and beyond the budget of the buyer even with the paltry compensation. Instead, the Bill should impose a penal clause that in case of ordinate delay, the Developer must provide a similar sized flat to the buyer in the same vicinity without any additional cost from the buyer or, the buyer should be compensated either the price of buying a similar home in the open market as promised by the Developer, or refund his money along with interest equivalent to the cost of flat, whichever is higher.

Also, it is one thing to make a law which calls for the developer to pay up in case a project is delayed and it is altogether another thing to expect him to pay up. Take the case of DLF. The company was fined Rs 630 crore for abusing its dominant market position by the Competition Commission of India (CCI) and held DLF guilty for grossly abusing its dominant market position in the relevant market and imposing unfair conditions in the sale of apartments to home buyers in contravention of the provisions of the Competition Act, 2002.

The height of wickedness and lack of honesty on the part of DLF that ever since the order came out, DLF has not paid a single rupee to CCI. Not only that. They have launched four different projects since then, despite continued objections of CCI. One can imagine that if DLF can get away without paying a regulator like CCI, where is the question of evilest Developers paying the “Aam Aadmi” for delayed projects? It is generosity and kindness of politicians towards the Developers who have fine-tuned the provisions of the Bill and garner more and more profit by robbing the gullible and helpless buyers who cannot approach the law which evidently again, is most corrupt in our country.

In the 2009 version of the said Bill, only those projects were exempt from the provisions of the Bill which were less than a 1,000 square metres and had less than four dwelling units. With the stretch of time over four years, the current version of the Bill is now made applicable only to projects over 4,000 square metres in size with no limit on the number of dwelling units.

Also there is a twist in the tale. Even more alarmingly…when a project is executed in phases, then each phase will be considered separately. This means that even very large projects could just be broken up into sub-4000 meters phases and escape much of the regulatory oversight of the Bill and the regulator and the evelopers for sure, might exploit this getaway route for the provisions of the Bill.

People who head the regulatory bodies are living under the comfy shelter of politicians who are eager to pump their “Hard Earned” money in realty business using the Developers as their instruments ensuring that the Developers do what they are instructed to do. Long live Politician-Developers nexus and the Bill does very little to address this menace. To be fair, one cannot expect any law to end this nexus at any time whether now or later.

Many countries have beaten India in diverse fields. However, India has out-beaten all the countries in one field and that is widespread corruption for which every Indian is proud about his country being on the pinnacle since ages. One of the areas of this majestic achievement by established interests of the corporate field is realty business.

 Mumbai has become the capital of corruption, especially in the construction business, perhaps, because of the highest property rates in India. Cheating property buyers, flouting the rules, getting the requisite papers and plans approved sometimes in advance, selling refuge and other free of FSI areas and construction and sale of illegal floors are common these days in the financial capital of India.

The benevolent Officials at MCGM are always in readiness to approve any and every plan where they smell greens offered under the table. MMRDA, MHADA, Banks, Politicians and Senior Bureaucrats, Police, Local Goons and all concerned are the core harvesters in most lucrative money spinning business involving multi crores of rupees in the name of developing our mother land.

Though the intent of the Bill may be moral, the two main issues i.e. one is rising real estate prices beyond the affordable limit and the other is prevention of corrupt and dishonest practices which will certainly continue to hamper the realty sector targeting the buyers dreaming a small house to shelter his family despite of the fact that unsold real estate projects are at a record high....

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FLATS NOW MORE COSTLY IN MUMBAI BANAM SHANGHAI

The Maharashtra State Government has planned to hike stamp duty by 1% and take it to 6% from October 1. The stamp duty is currently computed at 5% within city limits. The revenue generated from this hike will be passed on to the BMC to support the latter's transition from Octroi to LBT.

The addition of 1% on the value of a flat irrespective of whether a sale or a gift may sound insignificant but in Mumbai, where a 2BHK in the distant suburbs may cost over Rs 1 crore and this additional burden would drill a big hole in the buyer's pocket.

If this hike is imposed by the government, a buyer will have to shell out aggregating 10% in various taxes like value-added tax, service tax on the value of property and this surcharge is in addition to the high property tax proposed by the civic body.

Even as the proposed levy is some four months away, the BMC however, does not want the government to collect the surcharge on its behalf. It pleads that it takes a long time before the government releases funds meant for the BMC. The BMC has already written to the government to allow them to collect the surcharge directly.

The Stamp Duty and Registration Department earns huge amounts on number of documents worth billions registered at each zone per month. Yet, the greed for the government continues to grow. The government runs as per the wishes of the people of India. At the time of introduction of VAT in 2005 the Government of Maharashtra promised that Octroi would be removed and there will not be any additional tax burden on citizens but now they have introduced the LBT.

The government in the year 2010, 2011 and 2012, collected almost 65% of tax from the registration of immovable properties. The income from stamp duty during 2008-09 was Rs 8,384 crore, which increased by 30% to Rs 10,901 crore in 2009-10, then to Rs 13,411 crore in 2010-11 and to Rs 14,800 crore in 2011-12.

The BMC hopes to generate over Rs 1,200 crore from this proposed surcharge. It had already collected property tax bills aggregating Rs 3,657.10 crore in 2012-13 following the transition of the property tax system from ratable value to capital value-based system.

The recent agitations opposing the inflicting of Local Body Tax (LBT) throughout the State proved that the LBT which the government is trying to introduce on developers and builders is otherwise, shall be detrimental to home buyer community.

It means is that home buyers who are already paying various taxes will need to cough up even more in the form of this new tax. The affordable housing is becoming a distant dream with additional new taxes being introduced from time to time. The prime motive of the government is evident to use housing as a source of generating more and more revenue under varied guise while not concerned about the common man.

Developers who are already reeling under the pressure of slow-moving economy shall certainly pass on this new tax to end-users. This will further raise the property prices, thereby hurting the prospects of affordable housing, which is the need of the hour.

As if the BMC also wants to be in RACE with the government is considering a proposal to bring construction activity under the purview of LBT. BMC proposes to extort LBT from builders on per square metre basis.

As per the proposal, for every floor up to four storeys, LBT will be Rs 100 per sq. meter. For a building without an elevator, it will be Rs 150 per sq. meter up to seven floors. Beyond seven floors, LBT will be Rs 200 per sq. meter. The proposal is at an emerging stage.

Mumbai has been witnessing a sharp appreciation of property prices in the last four years. South Mumbai, as compared to other localities has had lower appreciation in Mumbai. The governing reason is the limited supply of open land. The secondary reason is the reduction of new launches. The fast changing construction norms brought in place by the civic body through new Development Control Rules (DCR) has also been attributed as one of the reasons for the price rise giving boost to more and more ZOPADPATTI ZONES in the city of Mumbai banam Shanghai.

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