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Credai Kerala Urges to Refrain from Budget Proposals Adversely Affecting Real Estate Sector

In Kerala
February 10, 2023

The budget proposal to increase stamp duty from 5% to 7% (40% increase) for the registration of flats within 6 months’ time period from obtaining the door numbers will have a serious impact on the Kerala real estate sector.

It may kindly be noted that the Kerala real estate market has still not recovered from the deep impact of GST and COVID 19 crisis. From the Stamp duty, registration fees and GST on RE transactions, the State is substantially benefiting with a 14% (7+2+5) direct revenue. This is apart from the 18% to 28% GST paid by the developers on the construction materials and labour charges, Credia Kerala office-bearers said.

It is to be noted that those who are otherwise not able to buy land and construct houses by themselves are fully depending on flats and villas promoted by
developers. The budget proposal will adversely affect Kerala market as most of the neighbouring states like Karnataka, Andhra, Telangana, Maharashtra are having 3% to 4% less duty compare to Kerala. For the said reason the Kerala based investors will opt such states for their new investments.

We request to reconsider the proposal and instead of increasing the rate by 2%, kindly maintain the same rate of 5% without any cut off period of 6 months. Such a decision will definitely bring new investments to our State thereby increasing the volume of transactions, leading to increase in the State GDP.

Budget proposal to impose tax on multiple ownership of house by a single owner may be excluded. This will have a significant impact on the Kerala real estate market because it will directly affect NRKs and other domestic investors who continue to invest in the Kerala real estate as the undisputed safest investment portfolio ever.

In may kindly be noted that the availability of second home investment meets the majority of rental housing requirements, particularly for IT sectors. While the central government encourages investment in second homes by providing a tax reduction on the interest paid on second home loans, the state government’s new decision to impose a tax on multiple ownership is a discouraging and disappointing move. Such a decision will result in new investments being diverted to other states, causing a significant loss to the state’s GDP. Therefore, we request you to please drop the new proposal to impose tax on
second home, they said.

Budget proposal for a blanket increase in Fair value of land by 20% should be reconsidered. When CREDAI has requested for no increase or any increase in fair value absolutely based on locations, circle and market value of adjacent properties, the same was proposed in the new budget on an arbitrary manner of 20%, blanket increase. With the highest rate of stamp duty and registration fees of 10% already existing in the state, the proposed increase in fair value will result in a cost increase of 20% on the same , leading to a net impact of 12% of stamp duty and registration costs on every transaction . Kindly note that the increase in fair value is not going to generate any additional revenue as it will result in promotion of illegal transactions within the State and diversion of investment to neighbouring states. We request that any increase in fair value may be done based on the basis of location and prevailing market value of adjacent properties.

Budget proposal to impose tax on newly constructed house which remains vacant is against the fundamental rights of the citizen. The houses that seem to be vacant are mostly owned by NRKs who will put to use such houses during their annual vacation to Kerala. It’s not fair on the Government to impose tax on houses that may found to be vacant, for several personal reasons of its owners.

Such of these decisions will result in new investors to stay away from the Kerala RE market. Therefore, we request your good self to please reconsider the proposal to impose tax on vacant houses.

The budget proposal for a revision in royalty on minor minerals may be done only based on scientific study and consultation with stakeholders concerned.
The budget proposal for royalty revision across all segments of the minor minerals will have an adverse impact on cost of construction. Any revision in this matter may kindly be done based on scientific study and in consultation with all stake holders.

The budget proposal to increase the price of petrol and diesel by Rs.2 per litre under social security cess mechanism will result in substantial increase in cost of production: Any increase in fuel prices will have a significant impact on a state like Kerala, which relies entirely on other states to meet its needs. Because the majority of construction products are brought to Kerala from other states, an increase in fuel prices will significantly increase freight costs, causing a significant increase in construction costs.

We request to please refrain from the budget proposal to impose social security cess of Rs.2 per Litre on petrol and diesel as it will have a significant impact on the State inflation cost.