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New real estate act draft lacks ‘Transparency’

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New real estate act draft lacks ‘Transparency’

MUMBAI: Draft rules of the new Real Estate (Regulation & Development) Act, 2016, (RERA), notified by the Maharashtra government on Thursday have been diluted to favour errant builders, property experts and housing activists said. They claimed that they lacked transparency and flat buyers will continue to remain in the dark as the draft gives developers a loophole not to disclose crucial aspects of projects.

The state has invited objections and suggestions from the public to the draft till December 23. Experts said the draft notification has eliminated most disclosure clauses to be put up by the developer.

Pankaj Kapoor of Liases Foras, a real estate rating and research firm, said some major builders need not divulge the carpet area of units. “The number, type and carpet area of apartments for sale in the project empower buyers to know exact specifications of the layout, and the developer could have avoided ambiguities related to pricing,” he said.

The draft has also excluded the encumbrance certificate, which would have disclosed encumbrances in respect of land where the real estate project is to be undertaken. Another crucial document excluded is a copy of the legal title report. “The buyer has been denied knowledge of the flow of title of the owner/promoter to the land on which development is proposed, with an authentication report,” said Kapoor.

The building’s sanction plan also need not be disclosed by the developer. This would have allowed buyers to know that the project being developed is in line with development control regulations, and the layout is in accordance with the sanctioned plan.

Anuranjan Mohnot, MD & CEO, Amplus Capital Advisors, said diluted rules will make RERA ineffective. “Unfortunately, draft rules in Maharashtra are very weak compared to Delhi,” he said. For instance, it is silent on disclosure of ongoing and past legal cases against the developer.

“For existing projects, the draft rules only require disclosure of utilisation of 70% money collected from consumers, instead of complete accountability of all consumers’ receivables. Accountability of consumers’ receivables could have helped them in seeking required funds from the developer for completion of a project in case it is delayed,” he said.
The draft rules also permit loading of fungible FSI and TDR in phases in one project, which can keep the project vulnerable to changes in development regulations. “We have seen multiple cases where developers were unable to load planned FSI or TDR due to change in regulations, which stalled many projects. Non-disclosure of this can keep substantial regulatory risks on buyers,” said Mohnot.
Consumer rights activist Shirish Deshpande said lakhs of rehab tenants and society members, whose buildings are redeveloped, will not benefit under RERA. “The draft rules provide exemption from registration if the builder constructs a separate building for rehab of tenants/society members. The original RERA Act covers the rehab component of redevelopment projects,” said Deshpande, adding that exclusion in the state draft has been done to favour builders.

Builder Rajan Bandalkar, state vice-president of NAREDCO, a body representing developers, said, “What is it that critics of RERA want? Do they want to punch developers, or are they interested in getting homes on time?” He said the housing regulator will ultimately decide what information a developer has to put up on the official website. “Errant builders will have to face the music if a project is not completed on time under the new Act,” he added.
Anuj Puri, chairman & country head of JLL India, said the draft covers all under-construction projects, where most issues of trust deficit have historically arisen. “But it is quiet on projects where possession is already offered, or occupation certificates have been received prior to the Act being passed. This limits the retrospective coverage for such projects,” he said.

Source: Times of India

Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

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The state of Maharashtra has added 232 cities to the existing 142 which makes it 373 cities under the Pradhan Mantri Awas Yojana Scheme (PMAY).

The officials at the housing department feel that this step will aid the government take up more projects under the PMAY scheme.

Sachin Kulkarni, Builder shared his concerns over the lack of coordination between the department in executing PMAY projects. He said, “This is a good sign. However, the PMO’s seriousness in promoting HFA is diluted by the time it reaches the authorities. Apart from collecting application from interested beneficiaries, nothing has moved on the ground in urban centres. I hope that this initiative moves on fast track”.

Maharashtra CM Devendra Fadnavis recently states that the in order to create more housing stock the state’s Slum Rehabilitation Authority scheme be brought under PMAY so that it can receive the subsidy to create more affordable housing. He clearly mentioned that the government intends to create more housing stock and it was taking various initiatives and making policy changes for it.

Also Read- Affordable Housing To Get A Boost With PMAY’s Scope To Be Extended To Private Lands

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Real Estate Sector May Fall Under GST What Does It Mean For Buyers?

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One after the other the real estate sector has witnessed massive policy and law changes in its systems. Nonetheless, the tide has not passed yet. The GST council will take up a proposal to bring it under the uniform nationwide levy.

As the industry is still recovering from the RERA Act, the finance minister, Arun Jaitley said that there is a strong case to include real estate in the new indirect tax regime. He said this last week and also mentioned that GST Council will discuss it in November.

At present, the home buyers are paying 12 percent GST on under-construction properties. This percentage includes two taxes which are stamp duty and registration. The rate of which varies in each state but GST will make them uniform.

Santosh Dalvi, KPMG India partner (indirect tax) said, “If the entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The stamp duty with registration and GST comes to approximately 18 percent for under construction properties. He further said, “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices”.

While agreeing, Bipin Sapra, EY partner (indirect tax), added, “It’s going to be a test for the government”.

Developers also pay taxes on raw materials. However, unlike other businesses, they don’t get any tax refunds through input credit. GST taxes every stage of the business activity to better compliance and compensates for it by permitting refunds.

Anuj Puri, Anarock Property Consultants chairman, said “By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” He added that it would make homes cheaper for buyers.

According to Sapra, it will depend on the tax rate applicable.

Niranjan Hiranandani, co-founder of Hiranandani Group said, “Real estate under GST ambit means consumers will only have to pay one final tax.” He stated that with the commencement of RERA it brings transparency and GST would reduce the burden in terms of taxes payable while buying the home. He concluded, “Not only will this create positive sentiment but it should also boost actual sales”.

Also Read: Affordable Housing Is The Changing Face Of Indian Real Estate

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Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

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In a move to protect home buyers from builders declaring their bankruptcy, the Insolvency & Bankruptcy Board of India (IBBI) has amended rules which make it necessary for any company to showcase how they have dealt with interests of all stakeholders. This is directed towards companies like Jaypee Infratech and some of the entities of Amrapali Group.

The regulator has informed about the revised rules last week. This will ensure that banks and other creditors do not get away by protecting their interests at the expense of others who are impacted by the action.  Banks are part of the creditors’ committee. They become an important decision-making body after a company is admitted for bankruptcy.

An expert bankruptcy lawyer said, “The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests.”

According to the new law that was enacted last year intends to speed up the resolution process in a period of 180 days, with a possible extension of 90 days. This will be done by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare a plan. As per the law, an information memorandum will be finalized if the creditor’s committee is willing to take applications from other interested companies to take over the company.

The insolvency experts say that the law providing for the plan binds corporate debtor (the company) and its members, employees, guarantors, and creditors, other stakeholders involved in the resolution plan. However, there are no obligations mentioned in the rule to give any treatment to the stakeholders other than the financial creditors (banks) and operational creditors, which includes vendors and others who may have dues.

The National Company Law Tribunal, based on the comfort provided by the revised rules, will choose the final resolution plan based on bids that are received. The lawyer further said, “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time.”

Also Read: Tanvi Group Fail To Deliver Homes And Declare Bankruptcy

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