Real Estate: very profitable !
RE is really very profitable…I got this from a builder…and it is worth reading:
A builder buys 1000 sqm land in Goa for Rs. 1.5 crores.
Land purchase including stamp duty at 8% for registration is Rs.12,00,000.
Construction cost for 1000 sqm is about Rs. 2.6 crores.
Sanctioned plan: Cost of Architect plan @3% (Rs. 8L)+ RCC (Rs 5.3L), of construction cost + infra tax @ Rs. 2.6L….so its totals like that:
Land cost 1.5cr+ brokerage 3L+stamp duty Rs.. 12L+Plan 8L+5.3+2.6+5L miscellaneous
= 1.86 crores.
builder now has 13 apartments of 100 sqm…selling each flat for Rs. 45 lakhs.
Purchaser pays 45L+GST+ Stamp duty+ Registration+brokerage
GSt 5.6L+SD 1.35+ Reg 90k+90k brokerage
Who really earned money?
Land owner paid Income tax of course….when he sold to a builder.
Sale of 13 houses @ 45L = Rs. 5.85 crores
Cost of construction – Rs. 2.6cr
Land, arch, rcc – Rs. 1.8 cr
So the builder earned Rs. 1.45 crores, ASSUMING ZERO INTEREST COSTS, he will pay tax of Rs. 45L. Therefore his profit is Rs. 1 crore.
Govt earned Rs. 10L from land owner
Vat, stamp duty, ….etc. Rs. 1.8 crores
From builder Income tax: Rs. 45 L
So the builder took the risk (and if he paid interest that has been ignored) and earned Rs. 1 crore over two or 3 years.
the Govt earned Rs. 2.45 crores.
Not bad at all.
And you think RE is a great investment? It is not. Just that people are foolish and have no clue how to calculate returns.
Omg that is another topic is it not?
Sudha
I know of a builder who buys the land but gets middle class and upper middle class people to pool in and pay for the construction costs and they get a flat at a discounted rate or “free” depending on how much they put in. This way he does not need to borrow for construction costs. He says he only has to sell a couple of flats to recoup land cost. Then he is home free. No pressure to sell…
Nikhil
It doesnt stop there.
All the flats will pay property tax each year to government. Building material used for construction will have GST which will accumulate to Goverment in the form of tax.
If land owner or Builder decide to spend there profit on vacation, buying new car, etc they will pay tax on it to Government again. Ultimately government will be winneri any case.
Only thing is somehow land owner, builder use black money then government share will be less.
themoneycrib
Stamp duty will always be 50% less than the actual value of the property. So govt will get GST on 75 lac and not 1.5 crore.
Also when the builder sells the property again if the property is valued at 45 lac, the stamp paper will only specify 22.5 lac and the rest cash transaction. As for profit, the builder gets (22.5 X 13 plots) 2.92 crore of black money which is not taxed, plus some profit out of remaining 22.5 lac which is GST’ed to govt. There are many ways in which he can convert this 2.92 crore black to white. Sorry to blast your bubble, builder makes good money as does the govt.
pradeep
Spot on @themoneycrib.
The govt servants who will have to sign umpteen documents during the entire project will get as much money as bribe as the govt gets as taxes.
This is the real India.
Anil Bilawala
Its a just one view …. if it was such an unprofitable business, most wealthy people would not hold significant part of their portfolio in Real Estate (Globally), rather than focus on profitability, evaluate the it from a perspective of Return on Investment, IRR & leverage.