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India’s crackdown on ‘nameless’ properties can help clean up sector: Experts

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India's crackdown on 'nameless' properties can help clean up sector: Experts

Property as defined under the 1988 law includes not only land and homes, but also assets such as gold, stocks and bank deposits.

MUMBAI: Indian Prime Minister Narendra Modi’s vow to take on benami, or nameless properties, can bring greater transparency to a notoriously opaque sector and help check prices if a new law is implemented properly, experts said on Monday.

The practice of buying a property in the name of someone other than the buyer has been widely misused to buy real estate with undeclared income and with fake names and identities to avoid paying tax.

It is estimated benami properties worth billions of dollars are held under fictitious names across India, bypassing laws to check ownership and depriving states of valuable revenue that could be spent on development and welfare schemes.

A 1988 law on such properties was amended this year to ban illegal benami transactions with stricter punishments including imprisonment and a fine of up to a fourth of the property’s fair market value. These properties can also be confiscated.

“We are going to take action against the properties which are purchased in the name of others. It is the property of the country,” Modi said in his monthly radio address on Sunday.

“This law will be put to use in the coming days to fight corruption,” he said.

Property as defined under the 1988 law includes not only land and homes, but also assets such as gold, stocks and bank deposits.

“If the new law is implemented properly, there will be greater transparency in the real estate sector, there will be less corruption, and we may see a correction in prices,” said Vinod Sampat, a property lawyer in Mumbai.

“But these transactions are hard to track, and the government has a poor record of implementation. While the intention is good, it remains to be seen if the law can be implemented properly,” he said.

A series of slum evictions in cities including Delhi has put the spotlight on an acute housing shortage in urban India.

About a third of the country’s 1.25 billion population lives in cities, with numbers rising as tens of thousands of people leave villages to seek better prospects.

A government plan to provide housing for all by 2022 is meant to create 20 million new urban housing units and 30 million rural homes. But the government has been criticised for the slow pace of implementation.

Going after benami properties can help accelerate the pace of implementing the government’s plan, said Anuj Puri, chairman of real estate firm Jones Lang LaSalle India.

“When titles are clear and transactions transparent, the confidence of lenders increases, so we will see a pickup in lending to buyers,” he said.

“This will increase the supply of residential real estate.”

The focus on benami properties comes on the heels of a crackdown on undeclared “black money” by withdrawing high-value rupee bills from circulation.

Source: economictimes.

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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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