Home prices set to surge in Chennai post shelter fund cess


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Shelter Fund

The proposed ‘shelter fund’ tax levied at the rate of 75 percent of existing infrastructure and amenities charges has challenged the developer community in Chennai. The city is bracing for a hike in property prices post the announcement as developers will pass on the increased project cost to homebuyers. 99acres.com takes a closer look at the new tax norm and its implications on the realty market.

In an effort to finance the affordable houses for the urban poor and decongest the city slums, the state government has introduced a concept of ‘shelter fund’. The fund will be used to create close to 6 lakh tenements for the Economically Weaker Sections (EWS) across the state and 1.5 lakh units will be constructed in Chennai alone.

As per the government, the corpus for the “Shelter Fund” for affordable housing for EWS and LIG categories will be created by levying a shelter fund cess on builders and developers at the rate of 75 percent of the infrastructure and amenities charges. All the proposed developments having Floor Space Index (FSI) of 3,000 sq m and above, except for the EWS residential projects where the size of the dwelling units does not exceed 50 sq m have to bear the brunt of the tax burden in a bid to fetch building plan approval from Chennai Metropolitan Development Authority (CMDA).

Implications of the tax

While the move aims at social welfare, it has not gone down well with builders and developers. It is learnt that the proposal has become the biggest concern for developers, after Real Estate Regulation and Development Act (RERA) 2016 and Goods and Services Tax (GST), as it will significantly impact the construction cost of the project. With the implementation of the tax, developers will now have to pay Rs 250 per sq m as shelter fee on residential projects and Rs 500 per sq m for commercial projects. Overall, the levy increases the cost of housing projects by Rs 25 per sq ft and commercial developments by Rs 50 per sq ft.

Satheesh a local property consultant, avers “Against the backdrop of subdued housing sentiments, an additional tax burden would take a serious toll on the property market, particularly in a city like Chennai, which has been consistently reeling under the pressure of demonetisation. The increase in building approval cost will put an upward pressure on the construction cost. This cost will eventually be passed on to the customers by the builders and would keep prospective homebuyers at bay. Already, by far, buying activity remained restricted in Chennai owing to RERA and GST as the prospective homebuyers were seen opting for rental housing. The additional tax burden would further trigger the sentiment and would result in muted buying sentiment in the city.”

Besides shelter fee, the government is also mulling to levy a cess of one percent of the Guideline Value (GV) on all land deals above a specified limit in urban areas. There is also a proposal to levy shelter cess at the rate of Rs 2 per sq ft along with property tax every half year on all properties in urban areas having a built up area of 1,500 sq ft and above to be credited in the shelter fund. 

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. 99acres does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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