Credai Magazine - April_2010

8/7/2019 Credai Magazine - April_2010

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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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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)


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


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



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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."



15/76


16/76


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


17/76


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


18/76

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



19/76

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.



20/76

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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23/76

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


meridian-city-hall Meridian-idaho-welcome-sign


24/76

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.



25/76

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



26/76

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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29/76

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

Documents

Credai Magazine - April_2010