credai magazine - april_2010
TRANSCRIPT
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Issue
April
May
June 2010
Private Equity Investments -
What a Developer should not overlook.
Private Equity Investments -
What a Developer should not overlook.
Meridian City, USA :
Inspiration for a 21st Century
"We consider CREDAIour partners"Interview with Honourable Union Minister
for Housing and Urban Poverty Alleviation
and Tourism, Kumari Selja.
"We consider CREDAIour partners"Interview with Honourable Union Minister
for Housing and Urban Poverty Alleviation
and Tourism, Kumari Selja.
World Expoin Shanghai World Expoin Shanghai
Meridian City, USA :
Inspiration for a 21st Century
Cover Story -
Path-breaking Innovationsin Real Estate
Cover Story -
Path-breaking Innovationsin Real Estate
Quarterly in house magazine of CREDAI NationalQuarterly in house magazine of CREDAI National
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C R E D A I I s s u e - A p r i l - M a y - J u n e 2 0 1 03
Dear Members,
The times are upbeat. GDP is likely to touch 8.50% this year. Core sector,
Manufacturing, IT, Hospitality, Tourism, Entertainment and most other sectors
have posted robust results. Exports sector has registered a positive growth after
a long time. Most of the companies are back in their expansion mode. Every company has announced hiring in large numbers
with the IT Companies leading the pack. Most companies have announced reasonable wage hikes. Fear of job loss has vanished
from the minds of the employees. Indian Companies are on the prowl again - have started acquisitions abroad. Gujarat and
Karnataka and a few more states are rolling out several PPP model projects. Karnataka is likely to sign almost Rs. 5 lakh crore
worth of projects during the Global Investors Meet during June 2010. Union Government is unveiling a mega one trillion rupees
investments on infrastructure in the next few years.
Yes, all these signals should have triggered a Real Estate boom by now. Real Estate market not doubt is recovering from the
dumps of 2008, but the same is not in commensurate with the growth of the economy in general. I was analyzing the reasons for
the same. One reason I can identify is that since about 5 to 6 months the media has been blaming that the Developers in Mumbai
and Delhi have jacked up prices by 30% to 40% the moment they saw some movement in the market. And the media kept repeating
the story all over the country over and over again. I am not sure whether the news about Mumbai & Delhi is right or wrong but
as far as the cities like Chennai, Pune, Hyderabad, Bangalore etc the rise is hardly upto around 5% and that too is limited to some
specific locations within cities or to some specific projects. But the media reports about Mumbai and Delhi may be affecting all
the metro cities. And the situation can become quite alarming. If there is any truth in the news, I am sure that our co-developers
in Mumbai and Delhi will take cognizance of the situation and take some drastic measures and if I am permitted to suggest, it may
augur well for the market if prices are reduced to reasonable levels. Unprecedented situations demand unprecedented solutions.
Probably, we can go a step further and even announce the reduction in the media either individually or collectively. This maytrigger a sudden spurt in demand as I am sure that there still remains a huge pent up demand. We should not allow a second dip
in the market, at any cost. As newspapers project, it should not be a story of the goose with golden eggs. Market was poised for
a 'V' shaped recovery since April 2009, but the movement has so far been slow. If drastic action is not taken, we may head
towards a double dip or a 'W' drop.
I repeat, I do not know if the media reports are true or not and my thoughts are based on the said reports and the suggestions are
purely personal. Kindly ignore them if I am wrong.
Regards,
A Balakrishna Hegde, Editor
The Editor is the Managing Director of Chartered Housing, Bangalore and the Immediate Past President of CREDAI- Karnataka
Why Real Estate markethas not yet recovered fully
and what is the remedy
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EDITOR
A. Balakrishna Hegde
EDITORIAL BOARD
Irfan Razack
Ranjit Naiknavare
Pradeep Jain
Niranjan Hiranandani
Dharmesh Jain
Harsh Patodia
Uzma Irfan
G P Savlani
Mukta Naik
CONTENT
Minerva Research and Media Services Pvt Ltd
Email : [email protected]
DESIGN & LAYOUT
GAAP Communications Pvt. Ltd.
Email: [email protected]
PRINTING
Jwalamukhi Mudranalaya Pvt. Ltd.
Please send in your feedback,
contributions and advertising queries to :
GP Savlani,
Resident Director,
Confederation of Real Estate Developers'
Associations of India
CREDAI - National Secretariat
703, Ansal Bhawan,
16, K.G. Marg,
New Delhi - 110001
Ph: 011- 43126262, 43126200
Fax - 011- 43126211
Email: [email protected]
Website : www.credai.org
Editors Note 3
Chairman's Message 5
President's Address 7
Path-breaking Innovations in Real Estate 8
CREDAI: In service of our members 13
Candid Conversation - "We consider CREDAI our partners" 16
CREDAI - Karnataka Initiative - Bangalore Impact - A Campaign for UIDAI - Aadhar 20
Best Practices - Meridian City, USA: Inspiration for a 21st century city 23
Service Tax Issues - Post Budget 24
Earned Value Management In Construction Projects- An Introduction. 29
Exploration Of Rain Water Harvesting At Macro Level 30
Using the sun to sterilize water 31
India's Real Estate Sector In Quiet Revolution Mode 33
Book Extract - SPACE FOR SHOPPING, By A.K. JAIN 34
Have A Glance Over Your Shoulder Please! 40
Landscape & Me 45
Architectural Design in Low Income Housing 46
Worker welfare49
World Expo in Shanghai - Shanghai stakes a claim to Asia's premier city 52
MCHI Property 2010 exhibition gets overwhelming response 54
Event report - Realty Expo 2010 by CREDAI Bengal 56
MCHI signs Joint Declaration with Maharashtra Govt; 59
Private Equity Investments - What a Developer should not overlook 60
A much larger role for CREDAI 62
CSR Initiative - VGN Homes adds school projects 63
Event Report - Property 2010 Thane 63
Recognitions - S.I.S. Safaa Highly Commended at Asia Pacific Property Awards 64
Recognitions - Secretary - Credai Kochi 64
CREDAI NCR in dialogue with Banking industry 67
Credai Preferred Partner Program (CPP) 68
CREDAI Vizianagram inaugurated 69
ROFL after client meetings Hilarious experiences of a Landscape Architect 70
S e r i o u s Humour 72
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Dear friends,
We've been debating and dissecting the proposed Real
Estate Regulatory Bill for months now. After listening to
several points of view from people at different ends of the
spectrum, I've evolved a very strong perspective of my own
and that which CREDAI has been trying to push at various
levels.
Real estate is a complex industry and each real estate
product, be it a home, shop or an office space, is produced
through a series of processes that form a long supply chain. This chain involves
stakeholders from varying backgrounds-the poor construction worker, the buyer, the
contractor, the banker, the development authority, the fire inspector, the sewage engineer
and many more-and impacts their livelihood. To cut a long story short, it is meaningless
to regulate only the real estate developer for a process that involves multiple stakeholders.
I strongly propose that the Real Estate Regulatory Bill be expanded to cover broadly the
following 4 categories of stakeholders-real estate developers, urban local bodies,
financing organisations and customers. A more holistic approach to real estate and its
myriad complexities will be a better bet to rid the industry of its ailments. The currentapproach must be abandoned in favour of a more inclusive one. Everyone must perform
to rectify the errors in the system and ensure on-time delivery of quality real estate at
appropriate costs. As the apex organisation of private sector real estate developers,
CREDAI will certainly ensure support of a bill that looks to improve standards and prevent
malpractice. We would be happy to work with the government on implementing a well-
rounded and holistic policy if our suggestions are well taken.
Warm regards,
Kumar GeraChairman
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Dear friends,
The report on real estate presented by McKinsey & Co suggests that our sector
is capable of contributing 1.5% to the GDP. But this will only be possible if the
Government of India puts in place effective policies for the growth of the real
estate sector. We all know the bottle necks that keep throttling the growth of our
sector. Apart from the urgent need to have effective policies and legislations to
enable us to procure land for development and expeditious clearances of
development projects. One of the major hurdles is the availability of finance.
The Reserve Bank of India and the Government should re-look at the importance
of the sector and accord it the priority that our sector deserves. India, as we all
know because of its policies of constraint, did not experience the turmoil of the
global melt down. But, at the same t ime, we all know the growth of our country
is slow and every Indian dreams of living in India which is even better than thebest in the world.
As the real estate market matures, we have more options to fund projects than ever before. Besides bank loans, we now have
the option for debt financing through external commercial borrowings for developing townships. The IPO route is also gaining
popularity as real estate organizations gain confidence to tap the stock markets. Qualified Institutional Placements (QIPs) are
emerging as another means of finance. Private equity and foreign direct investment are being explored by several organizations.
For the large developers, there are many financing options, but new entrants and small players still find no place in accessing
these funds. For a housing revolution to take place policies of the Government has to be all inclusive and all developers, large
and small, should be in a position to get finance for their projects.
There are several challenges. We urge RBI to consider bringing about a radical change in the funding of the real estate projects.Shortage of housing can be met by increasing supply. Curtailment of credit to this sector is counter-productive and the shortage
of housing continues to increase. Some of the policy initiatives that are urgently required are:
1. Direct banks and financial institutions to lend to developers aggressively to accelerate supply.
2. Priority be accorded to fund projects for the common man. Presently Rs 20 lakhs is classified as priority lending this norm
needs to be revised upwards to at least Rs 50 lakhs.
3. Reduce home loan rate to within 7%.
4. Reduce rate of interest on loans to developers to 9%.
5. Norms to fund real estate projects should be similar to industry. Large and small developers should be entitled to access
funds.
6. FDI/ECB norms to be relaxed.7. Treat Real Estate at par with Infrastructure for funding.
8. The pension funds and insurance funds be permitted to invest in housing and secondary mortgage market papers.
While we continue to draw the attention of the Government to ease the norms of funding, we, as developers, are duty bound to
follow and adhere to adopting healthy and transparent policies. We need to lay due emphasis on corporate governance and
make concerted efforts to improve our image before our customers. We are also duty bound as members of CREDAI to adhere
to and follow our Code of Conduct, both in words and in spirit.
Its a two way process. Lets all work together to bring about a revolution in our sector. Lets set an example for others to emulate,
let us together open the doors for a better tomorrow.
Sincerely,
SANTOSH RUNGTA
President CREDAI
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C R E D A I I s s u e - A p r i l - M a y - J u n e 2 0 1 08
Path-breaking Innovations
MEDITOR'S BOX
As we use a pen everyday,
we never think of the men
and ideas behind this great
invention. All our real estate
developments today are born
out of innovations of the past.
The Author takes you
through some.
in Real EstateMany of us
w o u l d
i m a g i n e ,
though we
know better, that the retail
mall, the intelligent
commercial office building
and the integrated township
have been here forever. We
use technology and formatsand add to them our own innovations, often without a thought to
those who pioneered them. Here's to taking a look at how some of
these path-breaking and life-changing real estate formats began.
The Retail Mall As We Know It
A Viennese architect who landed in the US during the World War II
"with an architect's degree, eight dollars, and no English", Victor
Gruen literally invented the retail shopping mall.
It all began when Gruen was asked by a friend in 1939 to design a
leather-goods store in New York. He came up with a revolutionarystorefront, with a mini-arcade in the entranceway filled with glass
cases, spotlights, and faux marble, and green corrugated glass on
the ceiling. He called it a "customer trap," designed to lure customers
into the store regardless of their interest in the products on display.
Needless to say, this was the seed idea that gave way to the very
concepts of modern retail.
His landmark project, the Southdale Mall, was the first enclosed
mall in the US near Minnesota. It opened in 1956 and Gruen had
actually envisioned it as the central point of a much larger community.
Southdale Mall literally turned the concept of hopping on its head.
Foir the first time, shopping was no longer facing the street or parking.
Instead, the mall was introverted with blank external walls and all
the activity focused on the inside. Instead of a spread out shopping
space, Gruen put the entire development under one single roof and
introduced air-conditioning. Another new concept was that of multi-
level shopping. The mall was spread over two flevels conneted by
escalators and fed by two-tiered parking. A central courtyard with
visual and entertainment attractions completed the picture. Southdale
Mall cost twenty million dollars to build. It had seventy-two stores
and two anchor department-store tenants, Donaldson's and Dayton's.
Gruen's visionary concept was to change the retail format forever.
Developers could now make money out of building shopping malls,
as central to community and urban life was revolutionary for a nation
and a world where the mindset was still largely rural. Malcolm
Gladwell, who later authored Gruen's biography wrote in The New
Yorker that "Victor Gruen may well have been the most influential
architect of the twentieth century." For Indian cities today, malls
have certainly become vivid symbols of the consumer culture and
indeed of urban life. Needless to say, they are the lifeblood of many
developers today.
The Modern Amusement Park
Walt Disney, who gave us our favourite toons like Mickey and Goofy,
also gave us the modern concept of an amusement park. Disappointed
in the kids' parks and fairs of his time that "were often dirty, sleazy,
money-grubbing places", he dreamt of a new kind of amusement
park that would have a fantasy setting, provide quality amenities and
represent the idea of family entertainment. The concept was far
Cover Story -
Mukta Naik
is an architect and
urban planner who runs her own
content writing and editing firm.
She has been writing on real estate
issues for the past ten years.
Gruen mall detroit, Victor Gruen (Inset)
whereas previously
commercial real estate
had been a highly risky
proposition. The
shopper now had a
whole new expereicne
to look forward to. The
developer had a new
business model.
Gruen's vision of the
shopping experience
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Disneyland, Walt Disney (Inset)
C R E D A I I s s u e - A p r i l - M a y - J u n e 2 0 1 09
beyond that of a carnival with rides, games, and inexpensive food.
Disneyland was conceived as an extension of the Disney brand, and
was the first theme park built in the United States. It brought about a
major shift in amusement park construction and more importantly, it
fuelled a new kind of real estate development surrounding major
attractions.
Interestingly, other Disney stakeholders did not support Walt's dream
and he got no financing for his project. Most bankers and investorsdeclined to help Walt as he had no real estate development and
construction experience. They told him that "the outdoor amusement
business was a cultural anachronism that had already declined into
senility." Walt was very confident, though. He began to gather funds
by borrowing on his life insurance and selling vacation property in
southern California. He assembled a staff of designers, planners,
and artists and formed WED Enterprises, named after his own initials.
The WED group reworked Walt's broad ideas through a long process
of research and creative brainstorming. In July 1953 Walt decided to
overcome the obstacle of his inexperience and commissioned two
studies from the Stanford Research Institute, one that would examine
the economic prospects of developing Disneyland, and the other the
ideal location for construction. The Stanford group declared that the
facility could be profitable and recommended a site southeast of Los
Angeles, a short 27-minute drive from downtown LA. Walt found
additional financing through selling television programming to ABC
television with an agreement that they would promote Disneyland in
return for an ownership stake in the property.
Construction began. Joe Fowler, an engineer and retired navy admiralwas the construction supervisor and later park manager for ten
years. Disneyland was formally opened a year later, on July 18, 1955,
to rave reviews. The instantly recognisable Disney brand and the
Disney philosophy were obvious and
the theme of the characters carried
into everything, the rides, the
attractions, the lanscape an even the
food stalls!
What started as an idea that drew
scepticism from everyone soon
became the capstone of Disney's
empire. In its first six months, one
million people visited the park; in its
first full year, three million people
passed through its gates. The park
quickly generated capital to finance
a vast expansion. In the years to come,
every expansion of the park resulted
in increased revenues beyond
expectations.
Most critically, Disney's plans envisioned that Disneyland becomes
a destination for vacationers. He planned for hotels and restaurants
to be built around the park as an integral part. Almost every major
amusement park around the world now replicates Walt's dream,
focusing on convenience, a superior guest experience, development
planning that allows for seamless expansion, and most importantly a
"theme" that gives a park a sense of identity and uniqueness.
New Urbanist Townships
Disillusioned by the cookie cutter spread of post-industrial cities that
renounced environmental concern and focused on the automobile,
and alarmed by the sprawl that modern cities were adopting, several
urban planners in '80s America began to simultaneously develop
some first principles for a new kind of urban development. A decisive
move in 1991 by a Califronia-based non-profit group called the Local
Government Commission invited architects Peter Calthorpe, Michael
Corbett, Andrs Duany, Elizabeth Moule, Elizabeth Plater-Zyberk,
Stefanos Polyzoides, and Daniel Solomon to develop a set of
community principles for land use planning. These, named the
Ahwahnee Principles were then sent to one hundred government
officials at the first Yosemite Conference for Local Elected Officials.
Calthorpe, Duany, Moule, Plater-Zyberk, Polyzoides, and Solomon
founded the Chicago-based Congress for the New Urbanism in 1993.
Today, the CNU has thousands of members, and aggressively promotes
new urbanist design principles across the world.
Broadly, new urbanism revives traditional norms of town planning
and promotes walkable living, connectivity through transit-oriented
development, mixed use developments as opposed to single use
zoning that promoted urban sprawl, mixed income housing to promoteequitable and diverse societies, high quality of architecture and
urban planning with emphasis on public spaces, increased density
and most critical of all, sustainability and green development.
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space resort
Rochester hills New urbanist community
C R E D A I I s s u e - A p r i l - M a y - J u n e 2 0 1 010
Though none of what the new urbanists said was "new", they brought together
the best design principles under one umbrella. Their vision and research
has spawned several communities across the USA and inspired developments
in Europe and South Africa. In India too, cities like Lavasa are based on new
urbanist principles and are starting a trend of integrated and sensitive planning
for new townships. Going forward, new urbanism will play a distinct role in
shaping the many new urban centres that the India growth story will spawn.
The Intelligent Building
A comprehensive mix of automated buildings that also adopt green principles,
intelligent buildings are here to stay, offering developers the benefits of
long-term cost savings and better building management systems. Technology
has played a key role in the development of intelligent buildings through the
efforts of hundreds of imaginative minds the world over.
The concept of energy management and building automation was fanciful
till the US faced a serious energy threat in 1973 when OPEC countries placed
an oil embargo. Suddenly, thought leaders realised that conserving andmanaging energy would be essential for survival going forward. At that time,
buildings were mostly over-designed, over-ventilated and inefficient. In the
early '80s, the existing energy management systems transitioned to direct
digital control (DDC) systems that evolved into the intelligent, sophisticated
control systems we have today. In the '90s, we started moving toward open
protocols, and now the use of building automation is an accepted part of
most projects. As more advanced versions of these systems were deployed,
energy costs actually started declining.
Today, we understand that energy efficiency and building automation is an
integral part of the future of commercial real estate. Developers across the
world have proved the financial feasibility of this business model. However,
we have along way to go. Even now, only a handful of iconic projects use the
availability technology and expertise. Developers in India should seriously
explore how these can add value to their projects.
On the anvil: Solar City
The city of the future, entirely powered through renewable energy sources
and envisioning the lifestyle of the coming generations, is actually being
built! The planned city of Babcock Ranch is a 17,000-acre community of
homes, offices, and factories near Fort Myers, Florida. The largest photovoltaic
project, a 75 megawatt solar photovoltaic plant that costs $350 million will
power the city. Developers Kitson & Partners envision a town where "electric
vehicles, able to plug in for recharge at convenient community-wide
recharging stations, will glide along avenues beneath the glow of solar-
powered street lamps. Revolutionary Smart Grid technologies will monitor
and manage energy use and Smart Home technology will allow residents to
operate their homes at maximum efficiency, thereby reducing energy costs."
Kitson & Partners is spending $2 billion to build 19,500 homes spread across
the affordability spectrum as well as 6 million square feet of retail and
industrial space. The development also promises the creation of 20,000
permanent jobs over 20 years.
Eye on the future: Space Resorts
If you have about three million euros saved up, you could
book yourself for a 3-night stay on the world's first space
resort set to open it doors in 2010. Developed by a company
called galactic suite ltd., it is actually a bio-inspired orbital
station designed to be a modular space habitat structure
with a central-enclosed area where modules will be
interconnected to a main docking port. Each of the modules
will include a sliding diaphragm window to allow tourists a
better view of the earth. A spaceship that can carry four
passengers at a time will transport tourists from a spaceport
facility located on a tropical island to the space tourism
spacecraft after an eight-week astronaut training course.
On board the spacecraft, the tourist will orbit the earth at an
average speed of 30, 000 km / h, completing 15 orbital
rotations per day. You will be carried around the world in 90
minutes and watch the sunrise and sunset every 45 minutes.
This is literally an out-of-the-world experience.
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n these times of great opportunity and challenge, its fitting that we
pull together and take CREDAI to the next level. The author outlines
what CREDAI does for its members and how you can help CREDAI on
its ambitious growth path.
The Confederation of Real Estate Developers' Associations of India
(CREDAI) has been in existence for over ten years now. In this time,
it has grown from a group of select developers to a large umbrella
organisation that spans nearly the entire country.
CREDAI's impact
Our achievements are many in the fields of enabling policy,
generating awareness on specific issues among our members,
initiating and sustaining dialogue between developers and other
stakeholders in the real estate community, like bankers, financers,fund managers, policy makers, customer representatives, etc.
Specific instances can be recounted from many areas, especially in
shaping policy. CREDAI gave valuable inputs to the government during
the formation of the Housing and Habitat Policy as well as for the
JNNURM program. CREDAI's consistent efforts contributed to the
abolition of urban land ceiling and stamp duty rationalization. The
organization contributed to the creation of the SEZ Act. CREDAI was
a member of working task force that drafted the urban development
and housing section of the 11th 5 yr plan.
CREDAI's consistent dialogue with the MoEF regarding Environmental
Clearance policy for construction projects has brought concessions
and relief, though this is still an ongoing process. CREDAI has joined
hands with the NSDC to promote skill development. CREDAI's
relentless efforts to oppose the levy of service tax on real estate has
born fruit with amendments made by the tax authorities and more to
come. Other matters of taxation like Section 56C and 80 I(B) of the IT
Act have also constantly been on CREDAI's radar. CREDAI played a
landmark role in urging the Central government to provide a stimulus
package for real estate during the recession.
CREDAI has also contributed vital ideas for the nation's development,
like the Special Residential Zone (SRZ) to reduce the demand-supply
gap in housing. The organization is working with Indian Banks
Association to improve financing situation for real estate as well.
Recently, CREDAI was able to work with the RBI and banking
association to reclassify real estate to exclude categories like SEZs
and hospitals. By doing this, the actual amount of bank funding to the
real estate industry can be monitored (it now shows as Rs 8,000
crores as opposed to Rs 40,000 crore by the old classification) and
this makes a strong case for increasing credit flow to our industry.
Local initiatives by CREDAI members have worked to improve local
building regulations and their implementation, improving the system
IEDITOR'S BOX
Mr. G P Savlani being the Resident
Director of CREDAI National is the
silent force behind all the CREDAI
activities. Here he gives you an
overview of the past and what's in
store for the future.
of approvals and permissions and addressed consumer grievances
through a special cells set up for grievance redressal.
Over the years, CREDAI has emerged as a powerful voice for the real
estate developer community. And since the importance of real estate
as a growth driver to the Indian economy grows with each passing
year, naturally CREDAI too has a far greater responsibility as time
moves on.
What does CREDAI do for its members?
At the national level, CREDAI takes up all the issues that impact the
developer community as a whole. It addresses macro-economic
policy, national level taxation and other laws through strong relations
with Central Government and Ministries, which CREDAI has
developed and nurtured through the years.
Essentially, CREDAI provides real estate developers with a unified
voice to
Represent issues to the government
Reach out to the consumer
Seek better solutions through consultation with stakeholders
Improve the developers' image
CREDAI facilitates interaction within the real estate community
through events and seminars and encourages discussion and debate
on key issues at NATCON, our annual conference. We invite expert
opinions on issues of concern and disseminate information about
latest industry developments, policy matters to our members.
CREDAI promotes ethics and transparency through the CREDAI Code
of Conduct, encourages best practices and efficient construction
methods through events and workshops and implements fair dealing
through a consumer redressal mechanism. We believe that efforts
towards corporate governance and transparency are critical to
improve the image of the developer community and will directly
increase the ability of the sector to attract funding from a larger
variety of sources. This is critical to the growth of our industry. Westrive to communicate this to members and encourage each
developer to join us in the drive towards transparency.
CREDAI builds relationships between developers, the government,
financial institutions, media and professionals and builds bridges
with the government through representations, debates, media
coverage and legal action. We're working towards building a positive
image of the developer community.
CREDAI serves the developer community by being their voice, a
resource, a good listener and loyal supporter, supports the
government by bringing the industry point of view to the forefront
and assists the real estate industry and the larger economy by working
towards a positive, organized and professional private developer
G P Savlani
CREDAI: In service of our members
C R E D A I I s s u e - A p r i l - M a y - J u n e 2 0 1 013
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community
CREDAI helps members prosper by creating a cohesive unit that can
reap the industry's true potential. In this way, CREDAI prepares the
stage for growth and prosperity for the developer community.
Moreover, by being part of an association that holds such an
influential position, the progress of the beneficiaries becomes
sustainable.
How CREDAI impacts your business closely?
Today, CREDAI brings together 5000 private sector developers
belonging to 19 city- and state-level associations under a single
umbrella. What's more, CREDAI is not a centralized organization. It
is doubly effective because it comprises of city- and state-level
associations that understand local issues closely and work towards
practical solutions at a local level. This is strengthened by a national
secretariat that takes up issues at the national level and works at
bringing its member associations together through various means of
communication and through events and round tables.
For instance, your city-level developer association, being a member
of CREDAI, will work to:
Monitor local development issues
Keep you informed of local policy changes
Make strong connections with local government
Address policy measures that harm developers
Reach out to consumers with important messages
Similarly, your state-level developer association will, being a CREDAI
member:
Make strong connections with the state government
Many policy issues are state subjects; the association will track
these and inform you of critical changes
Raise common issues with the government in collaboration with
national association CREDAI
As an individual developer, you will benefit greatly from being part of
a city- or state- level association.
CREDAI is dreaming big
Clearly CREDAI has the potential and should look at catapulting itselfto the next level. We are already working out plans to offer enhanced
advantages to our members, in comparison with what NASSCOM
does for the IT/ITeS industry, for instance.
A study by Ernst & Young recently submitted to CREDAI encourages
us to adopt some initiatives from other successful industry
associations. Some of these are:
Creating committees that identify and benchmark best practices
in our field
Commercialising new concepts
Encouraging support industries
Greater emphasis on research and knowledge sharing
Databases for trade leads
Tie-ups with incubation centres that support business
Promote skill development
Acquire and distribute standardized reference material through
portal, other avenues
Encourage standardization
Encourage innovation
Global outlook
Develop new markets
Introduce consumer-oriented initiatives
We are aware that there are several initiatives that we can take to
improve our performance and increase our reach. However, by
definition, an association is the sum of its members. Therefore, we
would appeal to you, our members and associates, to pool in your
resources and help CREDAI grow.
How can you help CREDAI?
If you are already part of a CREDAI member association, please
share your concerns with your CREDAI office. We can discuss
problems, seek solutions and grow together. If you are not yet a
member, join now or if there isn't a CREDAI member association in
your city, start one with our assistance. If your city-level developer
group is not part of CREDAI, make sure it becomes part of the CREDAI
family to make a great impact.
Be the Change
CREDAI has the chance to play a significant role in the nation building
process. India is urbanizing rapidly and is in need of large amounts
of infrastructure. We live in challenging times when decisions and
policies are made in favour of powerful lobbies backed by research
and credible organizations and people. CREDAI has the potential to
be such an impactful organization.
To achieve our goals, we need your support and teamwork. As the
famed industrialist and philanthropist Andrew Carnegie, one of the
most famous leaders of industry of the late 19th and early 20th
centuries, famously wrote, "Teamwork is the ability to work together
toward a common vision. The ability to direct individual
accomplishments toward organizational objectives. It is the fuel that
allows common people to attain uncommon results."
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on'ble Union Minister for Housing and Urban Poverty Alleviation and
Tourism, Kumari Selja spoke to Mukta Naik on the role of private
developers in affordable housing, the progress on the regulatory bill
for real estate, and her perceptions of CREDAI's role in the industry.
Housing, especially affordable housing, is clearly the need of the
hour. Private sector real estate developers, though interested, are
unable to bring down costs below a point due to cost of land and
long approval processes. How does your Ministry plan to bring private
sector developers into the loop so that they are encouraged to build
and sell affordable homes at reasonable prices?
The auctioning of land for determining its market price is an old and
well established economic principle. Prima facie, there can be no
objection to the auctioning of land acquired by the state governments
at agricultural prices, if its land use is changed and it is given in
ownership to private parties who then derive benefit from the capital
gains or put it to use for purposes that yield higher returns. Such
auctioning enables the government to be the beneficiary of the
unearned increase in land value and the conversion of land use
plugs the gap in demand-supply of urban land.
H"We consider CREDAI our partners"
The security of tenure and access to basic civic amenities will
materialize only if the issues of scarcity of urban land and high urban
land prices are addressed comprehensively. The aims of the Urban
Land Policy, 1965, remain valid but its implementations, unfortunately,
has not yielded desired results. Meanwhile there have been changes
in the macroeconomic policy and the country has witnessed large-
scale urbanisation, both, through the expansion of existing cities as
well as due to the migration from rural to urban areas.
My ministry has consequently taken an initiative to set up a committee
to study and give recommendations on how towns should expand
and grow to meet these challenges. The details are being worked
out in consultation with the sister Ministry of Urban Development,
which administers the issues of urban planning and development.
Will single window clearances, or at least simpler clearance
procedures for developers ever be a reality in your opinion?
The state governments and the private sector have to work out awin-win combination to simplify the approval procedure. The private
sector needs to give a firm commitment to the state governments for
Candid Conversation
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realising the objective of affordable housing in their projects and the
state governments need to put a system in place for single window,
fast track clearances.
For instance, the Maharashtra Chamber of Housing Industry (MCHI)
and the Government of Maharashtra (GOM) have signed a Joint
Declaration on April 28, 2010, for delivering 4 lakh homes in five
years. I am given to understand that the GOM has assured to take
measures for the removal of bottlenecks and the implementation of
projects under the programme and has appointed the Mumbai
Metropolitan Region Development Authority (MMRDA) as the nodal
agency for the approval of all projects under the programme and
granting single window clearance. So a beginning has already
been made.
What kind of commitment do you feel is needed from private sector
developers?
There is more that can be done in a country of our size. One of the
areas where we need the private sector to play a bigger role is in
affordable housing for lower to middle income groups. There is a
huge demand, especially given the rising middle class and expanding
tier-II cities. There also need to be holding areas rather than just
megacities. So the private sector needs to realise that and step in.
The meaning of 'affordable' also needs to be understood. If you
make a Rs 80 lakh houses instead of a Rs 1.5 crore house, it is sti ll not
affordable for, say, young professionals.
I understand that developers tend to think that housing for the low
to middle-income groups will not give them large profit margins.
Obviously there are some systems that have to be put in place to
make it attractive for the private sector to get into. I feel, however,
that for the private sector, it is here that the economies of scale
can work.
The other issue has been access to technology. Is the government
planning to provide some schemes that offer low cost housing
technology to developers so that they can keep cost of production of
houses low?
The Building Materials and Technology Promotion Council (BMTPC),
an autonomous organisation of the ministry is already actively
involved in the facilitation of cost-effective building technologies.
There is also in the pipeline a scheme for the promotion of the
Knowledge Network on Innovative Housing Technologies (KNIHS),
which, inter alia, envisages the benchmarking of the established
and approved technologies in the curricula of engineering courses.
I must say that some state governments that are forward-looking and
willing to experiment are bringing in new technologies. For instance,
some are going in for monolithic construction.
As Government of India, we have to ensure that any new technology
that comes in is also cost-effective as well as friendly to the
environment. The good thing about a free market is that you can get
in technology from outside more easily, but at our end we have to
make sure it complies with certain norms.
In Maharashtra, there has been a recent announcement of public-
private partnerships (PPP) to develop affordable housing? Are there
any other successful examples of PPP for affordable housing? In
your opinion, how can PPP be encouraged?
The recent announcement of the
MHRI and GOM collaboration is
another step in the direction of
PPP in affordable housing. There
are other models of PPP in
housing too, like Bengal Ambuja
Housing Development, a
collaboration between M/s
Gujarat Ambuja Ltd and the West
Bengal Housing Board; the HIDCOShapoorji Pallonji Alliance for
delivering affordable home to the
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residents of Kolkata; the New Township Policy developed by the
Uttar Pradesh Housing and Urban Planning Department 'Awas
Bandhu'; Dharavi Slum Rehabilitation in Mumbai; and the concession
agreement signed between Jaiprakash Industries Ltd (now Jaypee
Infratech Ltd, the special purpose vehicle created as per the
concession agreement) and the Yamuna Expressway (erstwhile Taj
Expressway) Industrial Development Authority.
Private developers feel they cannot address the problem of housing
for the poorest sections of society. What are the government schemes
that are addressing this and how far will they be able to meet the
needs?
The Jawaharlal Nehru National Urban Renewal Mission
(JNNURM), launched by the government in the year 2005, focuses
on providing housing and basic services to the urban poor in 65
specified cities through the sub-mission Basic Services to the Urban
Poor (BSUP) and in other cities through the Integrated Housing and
Slum Development Programme (IHSDP). By the end of April 2010,
there have been 475 projects approved under BSUP and 947 projects
approved under IHSDP all across the country, envisaging the
construction or upgradation of 1,022,689 and 502,281 dwelling units
respectively.
A new scheme, called the Interest Subsidy Scheme for Housing the
Urban Poor (ISHUP) has been launched to make housing affordable
and within the repayment capacity of the economically weaker
sections (EWS) and low-income groups (LIGs). The scheme
encourages these sections to avail loan facilities through commercial
banks and housing finance companies for the purposes of the
construction or acquisition of houses and avail a 5 percent subsidy
in the interest payment of loans of up to Rs 1 lakh. The scheme is
demand-driven and so far Rs 41.83 lakh have been released to the
National Housing Bank (NHB) towards the net present value (NPV) of
the interest subsidy claimed by the State Bank of India (SBI), Indian
Bank and the Central Bank of India in respect of the loans sanctioned
in Andhra Pradesh. The subsidy will benefit 603 households.
Further, with a view to encourage the allotment of land for EWS
under the scheme of Affordable Housing in Partnership, the Central
Government provides assistance on a progressive scale vis--vis
the built-up area earmarked for EWS and LIGs as a percentage of
the total constructed area. The assistance is available for the
provision of civic services such as water supply, including ground
level and overhead service reservoirs, storm water drainage, solid
waste management, sewerage, including common sewerage
treatment facilities, rain water harvesting, approach roads,
electricity lines and so on.
Infrastructure, urban services and city management are all challenges
for Indian cities. Have schemes like the JNNURM truly encouraged
states/city corporations to improve the service delivery andgovernance models?
From an urban citizens' perspective, the administration of the urban
local self-government impacts their lives more than any other tier of
government. Therefore, reforms in the administration of the institutions
of urban local bodies (ULBs) potentially have a significant positive
impact on the quality of governance, service delivery and the overall
quality of life.
Under the JNNURM, the states have signed a tripartite agreement,
along with the ULB and the Central Government, and reforms are apart of the agreement. Funding is conditional to the implementation
of reforms. Streamlining of the processing for public disclosure,
administration of property taxes, use of IT under e-governance and
land-use reforms are some of many reforms that the JNNURM mission
has pushed through.
In your view, how has the JNNURM scheme fared till now? What
kind of butterfly effect will it have on the overall development of
cities in the country?
The integrated slum redevelopment approach if JNNURM for the
provision of shelter, tenurial security and basic services to slum
dwellers has been widely welcomed as it has the potential to
make the country slum free. The new programme that we are
implementing, called the Rajiv Awas Yojana (RAY), envisages giving
property rights to the poor. This would enhance their stake in
democracy, law and order and wealth generation. The new
programmes we are now contemplating envisage a whole city
approach to tackle not only existing slums but also the factors that
lead to the creation of slums. This would translate directly into
finding solutions for massive land and housing shortages that drive
prices beyond the range of the poor.
Given that different departments collect data from their perspective
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of need, is there some streamlined access to data to make planning
for affordable housing easier and more effective?
There will be a streamlining of information because the Planning
Commission is going to conduct a survey of the urban poor. So it will
all come together there. We are also eagerly looking forward to the
Unique Identification Number (UID). By itself, the UID is just a number
that each citizen will have. Its real impact, however, will be that it
will help the government in more effective delivery of its schemes.
Even the RAY will be implemented after proper surveys and after
developing planning models. Already Rs 70 crore has been earmarked
for the preparatory phase, which will include these surveys to identify
the correct beneficiaries for it.
What is the status of the Real Estate Regulatory Bill? When will it get
implemented and have the concerns of the real estate developer
fraternity been addressed, in your opinion?
Unveiled as an item under the 100 Days' Agenda of the Ministry on
June 30, 2009, a draft of the Model Real Estate (Regulation of
Development) Act 200_ was prepared and put in the public domain
by the Ministry in August 2009 to invite comments and suggestions.
Responses poured in and continue to be received well after the
November 6, 2009, deadline. More than 350 comments were received
from real estate associations, real estate developers, consumers
and state governments.
These have been discussed with select state governments in March
2010 as well as in a series of workshops in April 2010. The second
draft is shortly being placed before a wider group of states, developers
and experts in another round of consultations before being finalised.
The point about involving stakeholders like ULBs and financing
organisations is well taken. We realise that they need clearances in
a time-bound manner and there are times when some people lose
out for no fault of theirs and they incur losses, sometimes passing
them on to the end-customer. We are trying to iron out these problems
to ensure that the customer does not suffer in the end.
That is why we are trying to formulate this model act. There is a lot
of pressure these days on the state governments as well and this act
will give them the flexibility to take what they need and modify the
model act to suit their requirements.
From an overall policy perspective, would it be possible to assure
our readers that your government is committed to removing the
roadblocks and ensuring that the housing industry can pursue their
work in a regulated, but unhindered fashion?
The draft Model Real Estate (Regulation of Development) Act 200_
has been conceived by the Ministry to promote planned and healthy
real estate development of colonies and apartments with a view to
protect consumer interest on the one hand and facilitate smooth and
speedy urban construction on the other.
It is hoped that the legislation will be helpful in the healthy growth of
the real estate sector and at the same time check the activities of
unscrupulous people who exploit buyers. Builders and developers
need to share more information with the public and consumers, so
that everybody takes a considered decision in the light of available
information.
What would be your message to the thousands of real estate
developers across the country in terms of where they should focus
their efforts and what are the opportunities they should look at in
today's context?
The urban affordable housing segment is the largest chunk of the
domestic housing market and is distinguished by being a steady and
growing demand that will not shrink or fluctuate with the share
markets or the global economy. Private developers need to exploit
the long-term entrepreneurial and business opportunities that lie
locked in affordable housing. PPP is an ideal vehicle. In a PPP, the
strength of the public sector which controls land and its regulatory
and legal powers are combined with the initiative and resources of
the private sector and its efficiency. Their strengths thus get
synergised to far greater effect and productivity. The PPP approach
will allow the state agencies to overcome resource deficit, improve
cost recovery and increase the supply of houses on a demand-
driven basis.
What have been your experiences with CREDAI over the years and
what do you think of the organisation?
We look upon CREDAI as a partner. I am of the opinion that unless
the private sector and the government work together, we won't get
anywhere. We can't work at cross-purposes. I share a good
relationship with CREDAI. It has called me to speak at several
occasions and I have met most of the office-bearers and other
members. I found them all to be very enthusiastic about affordable
housing. I have met developers who are very sincere about wanting
to develop affordable housing. And over the years we have come totrust each other immensely, so when they say they are serious about
something, I am sure that they really are.
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he effort and the concept of Unique Identity for residents
of the country impressed the members of CREDAI
Karnataka. For the Industry plagued with myriad
problems this concept of recognizable identity will enable
address most of them, if not fully. Since the Industry is the second
largest employer
and still
unorganized, the
effort in creating
identity to 50
million odd
c o n s t r u c t i o n
work force is a
herculean task. Sensing the prospects of CREDAI involvement in the
exercise, Past President Ramani Sastri entrusted the task of creating
a platform to address the issue to me. Under the chairmanship of
Mr.Balakrishna Hegde I was given the task of organizing an interactive
session with the concerned associations. The proximity to connected
associations enabled me easy identification of target audience in
our effort. We invited all the Center Chairmen of Builders Association
of India (Southern Cities) along with all the CREDAI center Chairmen
of 4 Southern States.
The campaign was organised on 19-4-2010 at Hotel Lalit Ashok,
Bangalore
The presentation was made by the Honorable Chairman Shri
Nanadan Nilekani himself. We at CREDAI Karnataka set the stage
for the campaign and hosted the event in Bangalore.
The Mission
The role that the Authority envisions is to issue a unique identification
number (UID) that can be verified and authenticated in an online,
cost-effective manner, and that is robust enough to eliminate duplicate
and fake identities
Purpose of the Campaign: (Bangalore Impact)
To work in liaison with UIDAI in propagating the scheme to
target residents of the country- the construction work force.
To educate through member association and members the need
to register the target residents
To act as catalyst in coordinating the effort for registering the
target residents.
To involve Association and members in the actual registrationprocess
Way forward:
Enlist complete support to the effort from the various Associations.
Organize seminars at
all association centers
of CREDAI and BAI
with specific pre-
prepared agenda and
event.
Discuss and finalize in
consultation with
UIDAI the simplified
recruitment form for
group registration
through their
respective employers/
Associations.
Create networking mechanisms with BAI and other similar
associations for implementation of the programme.
Fix target date for completion.
Regular review between various associations.
CREDAI will lead the campaign and will be the link between
UIDAI and other involved Associations.
Form core group to monitor the implementation.
CREDAI HQ to keep update of progress and report at regular
intervals.
PR Exercise by CREDAI through various means.
The arrangements and the concept presentation by us were greatly
appreciated by Sri. Nandan Nilekeni. He had assured necessary
support in our effort and all the delegates assured full support to the
effort. Similar effort for the other three zones is planned at the
appropriate time involving all the Construction fraternity for proper
implementation. The 50 odd participants who are chapter heads of
BAI and CREDAI of Southern States appreciated the effort and have
assured full support to CREDAI's efforts. The campaign by CREDAI
Karntaka had its real impact and the media fully reported the event
with positive mileage to the Association.
(IN ASSOCIATION WITH BUILDERS ASSOCIATION OF INDIA AND OTHER CONNECTED ASSOCIATIONS)
CREDAI - Karnataka InitiativeBangalore Impact - A Campaign for UIDAI - Aadhar
T
S.Suresh Hari
Secretary - CREDAI Karnataka
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eridian is nw
the third
largest city in
Idaho, USA.
T h e
population grew a huge 81.5%
from 2000 and the head count
now crosses 73,000. The growth
comes from the city's vision, to
offer a premier place to live,
work and raise a family. And it
is with this foresight that we see
a diversifying local economy, a
workforce under training and
other moves to develop a
connected community. At the helm of affairs is Mayor Tammy de
Weerd.
Blueprint for transformation
Setting up an urban work environment to encourage economic
stimulation, with the expansion of downtown Meridian, while
connecting to a greater business community across the state was
one of the targets. The Meridian Development Corporation (MDC)
with its independent role as an urban renewal agency,was set up
with a Board of Commissioners. The assignment: to establish the
most technology and business minded city in the region.
The Smart Business Ecosystem (SBE) was developed in association
with Vengaworks to come up with office space in high-performance
buildings. New jobs created in businesses working to make the
building more energy efficient are also leveraged.
Meridian City, USA: Inspirationfor a 21st century city
MEDITOR'S BOX
This new series will look
at examples from across
the world that can inspire
developers in India. In this
case, the transformation of
Meridian from a sleepy
rural town to a bustling hi-
tech city can easily beachieved in India by a
smart integrated township
development.
Strengthening the heart
As development spread on the outer fringes of the city, MDC had
taken on a new challenge by bringing the people back home to the
inner city. The new City Hall was among the first to be built and
trigger development. Many of the city's services were consolidated
here. Downtown began to mean a vibrant, walk able place to be in.
New projects just added to the convenience and pleasure.
The Ground Floor: Powered by Vengaworks
Attracting Idaho entrepreneurs and business professionals to
Meridian's business city centre is the 3000 sq ft Smart Work Center.
The project is financed by MDC. The area offers enterprise class
infrastructure, private and collaborative work spaces, meeting rooms
with high-definition video systems, digital-media-equipped training
and seminar space. Members, residents and workers can use the
space for a monthly fee.
By location and the facilities it offers the project bridges the gap
between the home office and a central office. Users get access to
tools and services they require for improved productivity; and all this
is at a downtown location that is a convenient commute.
Innovation corridor
Furthering plans of their long-term growth strategies for economic
development, environmental measures and community initiatives
will be the 'corridor development' downtown for the Health Sciences
and Technology Corridor (known as "The Core"). This 1,800-acre
project would include a new 60,000 sq ft acute care hospital and
Idaho State University's Meridian campus. Several other corridors
are being researched for business viability.
Best Practices
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meridian-city-hall Meridian-idaho-welcome-sign
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By S Sivakumar, Director, S3
Solutions Pvt Ltd, Bangalore
SERVICE TAX ISSUES -
POST BUDGETN
EDITOR'S BOX
Despite never ending confusions,
the author who is well known for
his ability to simplify the most
complex issues, brings in as much
clarity as possible.
ow that the
Pr e s id e n t
has already
given her
assent to the Finance
Act 2010 on May 8, 2010,
the amendments to the
existing service tax provisions have already come into effect from
that date, including those related to Construction of Complex services,
Commercial or Industrial Construction services and Renting of
Immovable Property services. The purpose of this piece is to look at
the possible controversies and issues that might arise, post Budget,
concerning the Realty Sector.
1. Changes in the Abatement Scheme on service tax - land value
cannot be included
The President has given her assent on May 8, 2010 to the Finance Act
proposals, passed earlier by both the Houses of Parliament. The
Finance Minister had announced on the floor of the House on April29, 2010 that the Abatement Scheme the Abatement Scheme for the
construction industry is being amended to provide that service tax is
now payable only on 25% of the amount received and that too only in
cases where the gross value includes the value of land constructed
upon. The exact wordings used by the FM, in his Budget speech, are
reproduced below:
"The construction sector has requested for a review of the changes
in the service tax law proposed in this year's Budget. Several
suggestions have been made by the trade associations. Considering
all the inputs, I propose to provide tax relief to this sector by enhancing
their rate of abatement from 67% to 75% of the gross value where
such value includes the value of the land constructed upon. Certain
procedural bottlenecks relating to the completion certificate
prescribed in the law would also be simplified." Of course, we would
need to wait for the Notification from the Government, on this increase
in the abatement value, which can only apply prospectively.
There seems to be some confusion here in terms of the value of the
land, in as much as, the Abatement Scheme covered by Notification
No. 1/2006-ST dated 1-3-2006 never included the value of land, in thefirst place. In fact, it would be unconstitutional for the value of land
to be included for the levy of service tax by the Government. One
does not quite understand then, the import of the FM's statement, in
the absence of a clear Notification/Circular from the CBEC, which
has not been issued, as aforesaid. Moreover, we must remember
that, when service tax was first levied on 'Construction of Complex'
services effective from June 16, 2005, the Board had clarified vide
Letter No. F.No.B1/6/2005-TRU dated 27-7-2005 that, service tax would
be payable only on the gross amount charged by the service provider
for the construction service provided and it would not include the
cost of land and stamp duty paid for registration of land'. Hence, in
my view, there is absolutely no way that the land cost could be
brought into the service tax net.
Very interestingly, no changes have been announced for the Works
Contract Scheme. Hence, the Occupancy Certificate related logic
does not apply to the construction contracts, which have been
classified under the Composition Scheme applicable to Works
Contractors.
2. Developers/Builders can opt for any of the three schemesAs things stand now, post Budget, Developers and Builders have
three options or schemes, under the service tax law. They can opt to
pay service tax under 'Construction of Complex Services', which is
in the statute book since June 16, 2005. In terms of the Abatement
Scheme applicable to these players, service tax is to be paid on 25%
of the gross value received, in terms of the FM's Budget speech,
from a date to be notified. Alternatively, they can opt to pay service
tax under Notification No. 12/2003-ST dated 20-06-2003, as per which,
the service provider is exempted from paying service tax on the
value of goods sold/transferred. The benefit of this Notification isvery much available to Developers/Builders/Works Contractors.
Alternatively, the Realty players can opt to pay service tax under the
Composition Scheme, applicable to works contractors.
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The major disadvantage associated with the Abatement Scheme is
that, cenvat credit is denied in respect of service tax paid on input
services and excise/CVD paid on capital goods, unlike the other twoschemes. Though the Department has been taking a view that the
benefit of Notification 12/2003-ST dated 20-06-2003 cannot be extended
to Developers and Builders, the Bangalore CESTAT, in the case of
Sobha Developers Ltd v. CCE & ST [2010] 24 STT 425 (BANG. - CESTAT),
has categorically held that the Developer is entitled to the benefit of
Notification No. 12/2003.
Developers who have contracted out the construction activity would be
better off, going under Notification No. 12/2003 or the Composition
Scheme for Works Contractors, given the significant benefit arising
out of cenvat credit. Developers and Builders would be well advised
that they are entitled to follow any of the above referred schemes in
respect of each of their contracts. There is a wide spread incurred
belief that the composition scheme has to be opted for, in respect of
each project. This is not quite true, in as much as, every contract for
construction of a flat is a works contract and consequently, there are
as many works contracts as there are flats, in a housing project. There
is a stipulation that a Developer cannot changeover to the works contract
scheme, in respect of a contract for which service tax has already
been paid under 'Construction of Complex' services as of June 1, 2007.
No such conditions exist, in respect of Notification No. 12/2003 and
consequently, the Developer can always shift to Notification No. 12/
2003 from the Abatement Scheme at any point of time.
3. Impact of Budget amendment on 'Construction of Complex' services
on ongoing and new projects
As we know, the President has already given her accent to theinsertion of the Explanation to Sections 65(105)(zzzh) and Section of
the , due to which, the scope of 'Construction of Complex' services
and Commercial or Industrial Construction Services is now expanded
to provide that, unless the entire payment for the property is received
post the completion of the construction of the flat/commercial
property, as evidenced by the Occupation Certificate, all contracts,
irrespective of whether they are agreements of sale or agreements
of construction, would be treated as taxable services. The FM has
assured to look at alternatives to the Occupancy /Completion
Certificate. The text of the Explanation, as passed by the Parliamentis as follows:
"Explanation.-For the purposes of this sub-clause, the construction
of a new building which is intended for sale, wholly or partly, by a
builder or any person authorised by the builder before, during or
after construction (except in cases for which no sum is received
from or on behalf of the prospective buyer by the builder or the
person authorised by the builder before grant of completion certificate
by the authority competent to issue such certificate under any law
for the time being in force) shall be deemed to be service provided
by the builder to the buyer;"
The important question that arises here, is, whether this explanation
is prospective or retrospective? The Department is very likely to take
I've tried to summarize the merits and demerits of each of these Schemes, in the table given below:
Issue Abatement Scheme-Notn. 1/2006 Notification Works Contract-
No. 12/2003 Composition Scheme
Does gross amount include No, despite FM's No No
value of land value statement in Parliament
Value of gross amount 25%, from date of notification 30% Not Applicable
on which ST leviable
Effective rate of service tax 2.575%, from date of notification 3.09% 4.12%
Is cenvat credit available No, with effect from 1-3-2006 Yes Yes
on service tax paid on input service?
Is cenvat credit available on No, with effect from 1-3-2006 Yes Yes
excise/CVD paid on capital goods?
Is service tax leviable on the free Doubtful, in the light of decisions of No Yes, in respect of
supply of materials by Developers? Madras and Delhi High Courts. contracts the execution of
Department however is issuing Notices which has already started
on orafter 1-7-2009
Is the Developer/Builder required No No Yes
to exercise his option and
inform the Department
Can the Developer/Builder change to Not Applicable and Not Applicable and No
another scheme, once he Developer/Builder Developer/ Builder can
has exercised the option? can change any time change any time
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the view that, this explanation will have retrospective effect, and
would cover all existing contracts also. In my view, such a stand
would be untenable, in the light of the Apex Court's judgment in the
Martin Lottery Agencies Ltd case [2009 (14) S.T.R. 593 (SC)], wherein
it had been held that, an explanation having the effect of casting or
widening the liability on a person can only be prospective in nature.
Hence, this amendment will not affect projects already completed
prior to the date of the coming into force, of this explanation. But, the
position could be a bit tricky in the case of existing or running housing
projects. It would be very difficult to take the view that the Explanation
cannot be applied to existing or running housing projects. While
discussing the impact of this explanation, we should bear in mind
the fact that, this amendment, which is prospectively applicable
from the date of the passing of the Finance Act, 2010, would effectively
nullify the impact of Circular No. 108/02/2009-ST dated January 29,
2009. Irrespective of whether agreements of construction or
agreements of sale are entered into, Builders and Developers would
now be liable for service tax, so long as, the entire amount from their
customers are not received after the date of the Occupation
Certificate("OC") and so long as they are rendering services under
'Construction of Complex' services. All agreements classif ied under
'Construction of Complex' services, whether for construction or for
sale of flats, etc. would now be covered under service tax levy, so
long as monies are received before the date of the OC. In fact, on the
face of it, even agreements for sale of readymade flats, entered into
prior to the OC date, would be covered under service tax. This view
gets strengthened when one goes thro' the TRU circular D.O.F. No.
334/1/2010-TRU dated 26th February, 2010, wherein, the amendment
has been listed under 'Alteration or Expansion in the scope of taxable
services' and not under 'New Services included in the list of taxable
services'. Hence, in my view, while the amendment related to the
levy of service tax linked to the Completion/Occupancy certificate is
prospective, the levy of service tax under 'Construction of Complex'
services continues to be applicable even prior to this amendment,
notwithstanding the Circular No. 108/02/2009.
4. Confusion continues vis-a-vis Works Contract services
As we have seen above, the Budget has not touched the scheme oflevy of service tax, for Works Contract services. Even the infamous
Circular No. 108/02/2009-ST dated January 29, 2009 was issued to
clarify the scope of service under 'Construction of Complex' services.
Hence, the scheme of levy of service tax under 'Works Contract'
services has more or less remained, except for the amendment
introduced in respect of inclusion of the free supply of materials by
the Developer in respect of contracts in respect of which, the
execution has already commenced on or before July 1, 2009. The
definition of a works contract, under the service tax law, is based on
the definition given in the state VAT law. Whether an agreement to
sell a flat could be considered as a works contract and consequently
be levied sales tax/VAT, is already before the Hon'ble Supreme Court,
in the L & T case 2008-TIOL-186-SC-CT.. In this case, it has been has
been submitted that an agreement to sell a flat should be differentiated
from a works contract and that, the law laid down by the Supreme
Court in the K Raheja Development Corporation case 2006 (3) S.T.R.
337 (S.C.) should be distinguished. The simple logic is, what cannot
be a works contract under the VAT law, cannot be a works contract
under the service tax law, as well. Should the Apex Court hold that
an agreement to sell a flat is not a works contract attracting VAT, the
levy of service tax under 'Works Contract' services, in the case of an
agreement to sell a flat, would fall 'flat'. If an agreement to sell is not
a works contract under the VAT law as well as under the service tax
law, it cannot be subjected to service tax under 'Construction of
Complex' services, as well. What is exempted under a specific head,
cannot be subjected to tax under a different head. The Supreme
Court's decision in the L & T case would therefore assume a lot of
importance and will have wide ramifications on the levy of service
tax on the Realty sector.
5. Can the Department recover interest and penalty from Landlords/
Lessors
As we know, many Landlords and Lessors had stopped paying service
tax, on the basis of the Delhi High Court's ruling in Home Retail
Solutions v. Union of India 2009(14) S.T.R. 433 (Del.). With the Finance
Act 2010 having been passed, the retrospective levy on renting
services has already come into effect. One major concern arising
out of the passing of the Budget is the introduction of the validating
provisions, as per which, the Department is entitled to recover interest
and penalty, in respect of Landlords/Lessors who have not paid theservice tax on the rents received by them. Of course, in cases where
no Show Cause Notices have been issued, the Landlords/Lessors
would be well advised to discharge their service tax liability along
with interest, taking the advantage provided by the amended Section
73(3) of the Finance Act, 1994. In cases where Show Cause Notices
have already been issued, the Landlords/Lessors would need to fight
these out, in respect of penalty.
Before concluding.....
Very unfortunately, the Budget does not seem to have brought about
any clarity, in respect of the service tax provisions concerning the
Realty sector. On the other hand, a host of new issues and
controversies have been created, including the reference to the
value of land under the Abatement scheme, in the FM's speech.
From the perspective of the Developers and Builders, it would be too
dangerous not to collect service tax on their housing projects, even
for the period prior to May 8, 2010. Developers and Builders, not
paying service tax, would now run the risk of being levied penalties,
in addition to the mandatory interest for the delayed period.
Of course, the Developers and Builders can make an intelligent useof the three schemes that are available to them and optimize their
service tax payments.
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o n s t r u c t i o n
Industry, not only in
India but all over
the world
traditionally has had a bad
reputation for time and cost over
runs. Project management
professionals have always been
looking for better ways of
managing these aspects of the construction industry. It is often felt that
other industries have better ways of managing these dimensions and
great amount of effort is spent in to identify a tool that meets this
requirement without realizing that great difference in culture that exists
between the other industries as compared to the construction industry.
Earned value analysis was formalized as a cost control tool in the
US defence as early as 1960s. The use of EVA (Earned Value Analysis)
for cost control and management gained popularity with theapplication of PC for processing of data.
Earned Value Management (EVM) has been used widely in many
industries such as defence, IT, phrama, oil and gas to name a few,
the construction industry is just now starting to pick up on this
technique.
EVM is a three dimensional tool. It compares the work planned with
the amount achieved and finally compares this with the 'cost' of that
achievement. Cost management on construction projects includes
the planning of the budgeted costs and their control. This is related to all the knowledge areas of the project. The actual costs are
related to the work performed, but, the work performed is not often
related to the work scheduled.
The purpose of this article is not to teach how EVA calculations are
done but to highlight the importance of using EVM as a tool to
monitor construction projects in a better and more realistic manner.
To quote 'Practice standard for Earned Value Management' of PMI
(Project Management Institute) EVM has been called " management
with the lights on" because it can help clearly and objectively
illuminate where a project is and where it is going - as compared to
where it was supposed to be and where it is supposed to be going.
EVM can play a very important role in answering some of the
C
EARNED VALUE MANAGEMENTIN CONSTRUCTION PROJECTS-
AN INTRODUCTION.EDITOR'S BOX
One of the most respected
Project Management
Consultants details a
more efficient Project
Management system.
frequently asked
questions to assess the
success of a project
namely:
Time parameters:
Is the project
ahead or behindschedule?
Likely completion
date of the project.
Is the time being
used efficiently.
Cost Parameters:
As of now is it
under budget or
over budget?
What is the cost of the pending activities?
What is the final project cost likely to be?
Will be over the budget or under the budget?
On application of EVM, if the project manager finds that the project
is running behind schedule or over the budgeted cost, the project
manager can use the same methodology to identify problem areas
and identify critical areas and what should one do to put the project
back on track.
As it has always been the case in the construction industry, adaptation
to use of any new tool or process for the betterment of project
performance monitoring has been an uphill task. Professional in the
industry must make an effort use these tools which would certainly
help in managing the uncertainties in a construction project.
It is needless to say the success of the application of EVM is dependent
on the accuracy of the information on which the analysis has to be
based upon. It is imperative that project schedule should be logic
linked and have the critical path and the milestones identified. All
the activities have to be identified in detail and also cost of each
activity specified.
Those who are interested to know more about the application and
use of Earned Value Management may refer to "Practice standard
for Earned Value Management" by the Project Management Institute.
Mr. A N Prakash, Managing Director,
AN Prakash Construction Project
Managements Consultants,
Bangalore
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Exploration Of Rain WaterHarvesting At Macro Levelhe sinking ground
water table in cities
and urban areas is
certainly a matter of
great concern. The tremendous
increase in population (especially
in the suburbs and extended
suburbs) has put great strain on
services especially on water
supply for the city as a whole.
While the awareness for rain water harvesting has increased of
late, we must also think of having ways and means of exploring this
at macro level to avoid the impending crisis. With more and more
buildings coming up and almost every plot / property being built
upon the open areas in all these developments are paved and
rainwater which was being absorbed in the ground during earlier
times is now being discharged in storm water drains ultimately
finding its way in the sea. This is the single most important cause of
lowering of underground water table mainly in the suburban areas.
The excessive discharge of rain water entering these storm water
drains and resultant overflow of these drains has also created
problems of water logging especially during days of heavy rainfall in
the monsoon in several areas in the suburbs.
T
It would be worthwhile seriously exploring the possibility of having
openings at certain fixed intervals in the storm water drains with pits
underneath these opening of suitable depth (atleast 2 mtrs. in depth)
below these openings (see illustration) which would allow percolation
of the rain water flowing in these drains in the ground. Provision
will have to be made for providing an inspection chamber above
these pits so that before the onset of monsoon, the tress leaves,
debris or mud etc. that may have accumulated on these pits can be
cleared. Such openings and pits could also be provided in the
internal storm water drains of large housing colonies and industrial
and commercial complexes. Apart from tremendous help in raising
the ground water table throughout the city, it will also help a great
deal in controlling the
flooding during the
heavy rainfall by
relieving the excessive
strain on the overloaded
storm water drains.
Over a period of time the
flooding during heavy
rainfall has now
become a recurring
phenomenon in most of
the suburban areas of
the city. In areas nearer
the sea, the spacing of
EDITOR'S BOX
Simplest and most
practical solution for
recharging the ground
water which can also
prevent flooding in
urban areas is discussed
in this article.
Jashwant B. Mehta
A Consulting Engineer who has
authored many books on varied topics.
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Using the sun to sterilize water(BASED ON BBC NEWS DTD. 22ND MARCH, 2006)
ven after 60 years of independence, a large majority
of our rural population is deprived of clean drinking
water. A very simple and effective way to solve the
problem could be to use solar radiation which means
a combination of ultra-violet rays and heat. This would
destroy the bacteria which cause