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Top 10 policy initiatives that impacted real estate sector in 2016

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Top 10 policy initiatives that impacted real estate sector in 2016

Real Estate Regulatory Act

The Real Estate (Regulation and Development) Act, 2016 which came into force in March 2016 has laid down a regulatory framework which is set to change the way real estate sector operates in India. It aims to enhance transparency, bring greater accountability, set disclosure norms to protect the interest of all stakeholders and also ensure speedy execution of property disputes in due course

Benami Transactions Act

The Benami Transactions (Prohibition) Amendment Act, 2016 lays down stringent rules and penalties associated with dealings related to “benami” transactions. It establishes a regulatory mechanism to deal with disputes arising with such transactions and levying penalties as needed to increase the institution investor participation and regulating the sector with an aim to make India an attractive investment destination.

Boost to affordable housing construction

In a bid to promote affordable housing, the Honourable Finance Minister proposed 100% deduction in profits to an undertaking from a housing project for flats up to 30 sq meters in four metro cities and 60 sq meters in other cities which are approved during June 2016 to March 2019. Another condition was that the project should be completed within three years of grant of approval.

Interest subsidy to home buyers

To stimulate housing demand from first- time home buyers, the Union Budget 2016-17 also proposed deduction of addition interest of INR 50,000 per annum for first time home buyers for loans up to INR 35 lakhs sanctioned during the next financial year for houses with a value not exceeding INR 50 lakhs. This move should positively influence home sales in non-metros in the long term where residential product prices are not as skyrocketing as in the metros.

Change in arbitration norms

Change in arbitration norms for construction companies specifies release of 75% of the amount against margin free guarantees in cases where arbitral awards have been given but contested which should improve the cash flow position of large developers who have significant exposure in infrastructure and government contracts and eventually help in speedy execution of large infrastructure projects. Coming at a time when most developers are struggling with liquidity issues, this is a boon from an overall perspective.

Service tax exemption

Exemption of service tax on construction of affordable houses up to 60 square meters under any scheme of the Central or State Government including PPP schemes will further propel construction in affordable segment across India and encourage greater collaboration between the public and private sector as well as participation in affordable home construction.

DDT exemption

The Union Budget 2016-17 exempted any distribution made out of the income of the Special Purpose Vehicles (SPVs) to the Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) from the levy of Dividend Distribution Tax. This paved the way for the REIT model to become financially viable for retail investors.

Goods and Services Tax

Goods and Services Tax (GST) is a positive move towards simplification of Indian tax system. However, the real estate industry is still awaiting clarity on which items fall into “sin” and “common use” and whether they will attract 18%, or 12% possible tax rates. Additional clarification is also needed if the implementation of GST will subsume existing service tax and value added tax (VAT) which are levied for under construction projects currently.

Demonetization

The recent demonetization of INR 500 and INR 1,000 rupee notes by Honourable Prime Minister is perceived as a significant reform. In the long run, this measure along with Real Estate (Regulation and Development) Act, 2016 (RERA) will align the real estate sector to the international standards of doing business resulting in more fund flow from institutional investors, banks and higher unit sales.

PR for foreign investors

The Union Cabinet approved the grant of Permanent Residency Status (PRS) to foreign investors subject to various conditions and with a provision for renewal for another 10 years. As PRS allows the holders’ spouse/dependents to take up employment in India as well as the purchase of one residential property for end-use, the end user pool, mainly for high-end and luxury segment products stands increased which can promote the asset class in a big way.

Source: ET realty

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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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