The Hindu Business Line : Additional burden of Rs 400 cr, say TN real estate developers

Industry & Economy - Real Estate & Construction
Government - Policy
States - Tamil Nadu
Additional burden of Rs 400 cr, say TN real estate developers

R. Balaji

Estimated additional burden at Rs 400 cr

Ear to the ground
Charges to be used to create infrastructure, amenities fund.
To be collected for different construction categories.
About 40-m sq ft construction space coming up in the next 15-18 months.

NEW CHARGE: a file photo of residential apartments

Chennai June 13 Real estate developers with projects in Tamil Nadu are concerned over the new infrastructure and amenities charge levied from June.

They estimate that the new levy would cast an additional burden of around Rs 400 crore on them, while leaving them no leeway to collect it from those who buy/rent the property.

Through an order dated June 1, the Department of Housing and Urban Development has levied an infrastructure and basic amenities charge that is to be collected for a range of categories of constructions. This includes commercial and IT buildings (Rs 500 per sq m), multi-storeyed buildings (Rs 1,000 per sq m), institutions (Rs 200 per sq m) and industrial (Rs 300 per sq m). These would be the rates for the Chennai Metropolitan Area.

The Director of Town and Country Planning is empowered to fix a rate for constructions in other areas in the State but up to a maximum applicable for Chennai under the order. The order is effective from June and the money collected through the charge is to be used for creating an infrastructure and amenities fund.

Upcoming projects

According to industry sources, about 40-million sq ft space is coming up for completion in the next 15-18 months. This would mean that at a charge of about Rs 50-100 a sq ft, the developers in Chennai alone would pay Rs 200-400 crore within one year.

The builders with committed space and finalised lease rents are caught in a fix. Lease rates have been stagnant in the last few months, as multinational companies have been resisting any hike. Builders are getting squeezed between the increasing land and construction costs and the stagnant rentals, say industry sources.

According to Mr V. Kalyanaraman, President, IT Parks and Infrastructure Development Association, at least 10 million sq ft of IT space would be completed over the next year or so. Another 30 million sq ft of residential and commercial space is also in the pipeline. Such a pace of development is expected to sustain over the next five years.

The association is not against creation of a fund for infrastructure. But just that the decision has to be based on "dialogue and reasonableness". There is need for transparency and accountability in the process, with a clear plan outlined for the funds collected under the charge.

Cost add-on

Also, such charges add to the operating costs. The competitiveness of the State is affected as multinational companies come here for the low-cost of operations.

Over the last year and a half, construction costs have gone up by more than 50 per cent. Builders of IT space are spending around Rs 2,200 a sq ft against Rs 1,200 earlier.

Also, more than one agency collects such charges. The State Industries Promotion Corporation, which promotes industrial estates, levies Rs 60 a sq metre. Metrowater is also looking at hiking charges for water supply.

IT space developers in industrial estates in Guindy and Ambattur are also paying infrastructure development charge under other programmes.

Another leading developer of IT space and commercial buildings pointed out that US companies are concerned over cost of operations in Chennai. This charge adds to the service tax on lease levied in the Union Budget. Other States are fast becoming a more attractive option.

More Stories on : Real Estate & Construction | Policy | Taxation | Tamil Nadu

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page