The Hindu Business Line : `Rate of return from real estate should be regulated'

MR K.C. CHAKRABARTY, Chairman and Managing Director, Indian Bank, being welcomed by Mr R. ParasuRaman, Immediate past president, CII South Region, at the `Estate South 2006' Summit in Chennai on Friday. Also seen is Mr Irfan Razak, Chairman, Estate South 2006. - K. Pichumani

Chennai , Dec. 8

The growth in the real estate industry and the rate of return should be regulated at `supportable' levels to avoid a bust after the boom, according to Mr K.C. Chakrabarty, Chairman and Managing Director, Indian Bank.

Addressing the seminar on real estate industry, Estate South 2006, Mr Chakrabarty said the boom phase that the industry is going through now is in itself not a cause for concern. Increasing expenditure on real estate and retail are signs of a growing economy. But the boom can continue only if investors are responsible and meet the realistic aspirations of the people. Ideally, returns for real estate investors should be higher than that from government bonds and about the level from equity markets. Prices cannot grow for long at higher than 30 per cent. Then speculators enter and real developers are affected, he said.

Serious players would welcome policy intervention. But the solution for now is not in artificially controlling prices but by increasing supply. Here again it is often the builders' lobby that block land ceiling reforms. In a democracy if supply does not increase to meet demand then there are vested interests at play, he said.

Some of the concerns are the lack of focus on rural housing, building efficiency, legislations like urban land ceiling, tenancy laws and complicated paper work.

At the seminar organised by the Confederation of Indian Industry - Southern Region, Mr V. Ranganathan, Senior Partner, Ernst & Young, said that despite improvements in taxation laws, indirect taxes continue to be an area of concern. Works contract, under the purview of State Governments, and service taxes, under the Centre, overlap and increase costs. Stamp duty varies from State to State. Industries want clarity on the cost of doing business.

Tax on income derived from real estate projects such as IT parks are treated as income from house property. Investors are denied depreciation on value of property. Special Economic Zone developers could also face this problem. This significantly affects rate of return.

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