Luxury homes for the rich would become more expensive after the finance minister today reduced the abatement on service tax availed by real estate developers for homes and flats above 2,000 sq ft or costing Rs 1 crore and above to 70% from 75% earlier. The impact will be amplified in Mumbai for almost every buyer of under-construction apartments as the city no more offers any decent size apartment at less than Rs 1 crore, the criteria used for applying the measure. The rate of abatement or deduction is used in calculation of service tax to be paid by the developer. Reduction in abatement will result in higher input cost that will be considered for calculation of service tax. "Buyers in tier II and III cities will not be affected much as there are not many projects falling in category and therefore the definition of luxury housing is apt for those cities. However, for metros like Mumbai and Delhi, even the basic housing cost is Rs 1 crore and this proposal will affect almost every buyer here," said Anuj Puri, chairman, Jones Lang LaSalle India. The total value of luxury homes, in 182 luxury residential projects offering 25,570 units across the top seven cities of NCR-Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata, launched between 2008-2012 was around $30 billion, said a recent Jones Lang LaSalle India report. Developers also seem to be ready to pass on the impact of higher service tax onto consumers who will in turn pay more to buyer these houses. "Reduction in the rate of abatement will make homes upward of Rs 1 core more expensive for home buyers as the tax out go will go up. But the number of people who will be affected will be few as there are not many home buyers in this segment. These higher tax out go will be passed on to the home buyers," said Venkat K Narayana, CFO of Bangalore-based real estate firm Prestige Estates Projects

Six years after DLF Ltd walked out of the 9,000-acre Knowledge City township project on the outskirts of Bangalore, the Karnataka government is trying to revive it, albeit on a much smaller scale. Under a new plan reviewed by Mint, the state is considering establishing a scaled-down version of the proposed Knowledge City through the public-private partnership (PPP) route. According to a pre-feasibility report prepared by ICRA Management Consulting Services, the new version is projected to cost Rs.2,789 crore, a far cry from the original Rs.50,000 crore estimate. While the report does not mention the quantum of land required for the project, or the location, it projects the land acquisition cost to be close to Rs.800 crore, around one-fourth the estimate for the earlier version. For Bangalore, the down-scaling represents the difficulties in managing growth and congestion in a city that grew 80% between 2001 and 2011, according to Census data. The proposed Knowledge City at Bidadi would have been one of the largest private township projects in the country, and the basis for the creation of a New Bangalore city that would have allowed the city to grow in a planned manner. The project was conceived by the H.D. Kumaraswamy government in 2006 at Bidadi, around 50km from Bangalore, as a hub for educational institutions and information technology and biotechnology firms, along with housing projects. Following a global tender that attracted bids from 32 consortia, DLF was awarded the project. But in 2007, DLF walked out after blaming the government for delays in acquiring land. This time, the state is more cautious: “It’s not a realty project. But there may be realty developments. It is not a university campus—but varsities play a key role,” the government says in its report. “The earlier project was located in well-irrigated, fertile land, and we had to face protests from farmers. We felt this would take off only after jettisoning much of the real estate component,” said a government official working on PPP projects in the state, on condition of anonymity. The state wants to build the Knowledge City with much smaller land requirements, he added. Higher education minister C.T. Ravi, whose department is overseeing the project, said the government will decide on the new project after the cabinet discusses the pre-feasibility report. “It’s too early,” he said. Farook Mohammed, chairman and managing director of Bangalore-based Silverline Realty, said it’s easier to execute small-sized projects across multiple zones than build a single, large one, such as the Bidadi project. “With land acquisition very difficult, smaller-sized projects will be a win-win approach for landowners and developers,” he said. The new project, too, will have housing and commercial facilities catering to students and faculty members, and hospitality facilities for visitors to the city. Karun Varma, managing director, Jones Lang LaSalle, a property advisory, said the key issue in such projects is the capacity of governments to infuse equity. “Given the economic situation and the time that such projects need to take off, this is crucial,” he said, adding there aren’t many investors who have the appetite for such projects, unless there is clarity on development of transportation networks, payback periods, and collaterals for the projects. The pre-feasibility report envisages the formation of a special purpose vehicle, jointly by the state and a private partner. The project will comprise institutes in higher and tertiary education, with particular focus on institutes for design and skill development. An institute for innovation and incubation is also being planned in partnership with global institutions in fields such as nano technology, cryptography, aerospace, neural networks, network security and robotics. One key component retained from the original proposal is the establishment of a biotechnology research centre. “Biotechnology is a strong point of Karnataka, especially as Bangalore is considered the biotech capital,” the report says. This research institute will focus on fields such as stem cell research. The report studied similar projects in Dubai (UAE), Kuala Lumpur (Malaysia), Doha (Qatar), Singapore, Doncaster (UK), Panama City (Panama), and Barcelona (Spain). Barring Dubai and Singapore, the rest follow a private-sector promoted model. The report suggests following the Dubai Knowledge Village model, promoted by Dubai Holding—owned by Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum.