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How Budget 2017 could make a bigger impact for real estate sector



Budget 2017

Housing for All by 2022 cannot be achieved without structural changes by central government.

Housing is a state subject. A wish list in Union Budget, therefore, sounds out of place. But an onerous target of Housing for All by 2022 cannot be achieved without structural changes by central government. The Real Estate (Regulation and Development) Act, 2016 (RERA) notification was one such step but much more needs to be done.

The key amongst them are:

1. Industrial approach towards taxation:

Across the manufacturing sector, taxes like excise duty are payable on delivery of product. In real estate, most of the taxes are payable either at the approval stage or at the time of booking a home. Why cann all taxes in real estate not be payable at the time of delivery?

The earlier argument against delivery-based tax-collection was that there was no security mechanism for government to collect taxes from developers. But now the RERA-mandated Project Escrow Account can provide enough security for collection of government taxes.

The purpose is not just reduction of cost of homes but a more strategic one. Linking government revenues to delivery of projects will make government authorities stakeholders in housing projects and will make them morally responsible towards completion of projects.

The role of government authorities will shift from being value extractors to co-partners in real estate projects. Thus, benefiting both developers and home buyers.

2. GST benefit to entire supply chain:

“Taxes paid on inputs can be offset against taxes paid on finished product.”

GST aims to achieve the above for all products except homes. Stamp duty on land, municipal taxes and so on paid by developers cannot be offset against stamp duty/VAT paid by home buyers, resulting in high costs due to the cascading effect.

Classifying all taxes paid by developers as GST is not only fair and justified, but also works towards making homes affordable.

3. Equity in property assessment taxes:

In any city, citizens staying in old homes constitute over 90 per cent of the population. State governments and municipal corporations find it politically unfriendly to increase house tax on old homes. This results in high maintenance cost for new homes. The central government needs to step in and bring in parity by restricting the maximum difference in taxation rate between old and new homes.

4. Home buyers fund for distressed projects:

Many projects are currently stuck midway because developers lack funds. Those who have booked homes have lost faith and do not want to pay more, new buyers are not in sight and banks do not want to fund them. Such incomplete projects have not only resulted in loss of faith but have also restricted housing supply as they are sitting on large parcels of land. Moreover, state governments and municipal corporations are clueless.

The solution lies on the lines of investor protection fund in stock market. Central government should create a home buyers fund where every home buyer contributes 0.1 per cent of the purchase consideration. This fund, which can generate few hundreds of crores can be used as seed capital to fund distressed projects.

The above initiatives can have a big impact on the supply and affordability of homes across the nations. But the same can be done only with central government’s initiative on this state subject.



373 Maharashtra Cities To Fall Under PMAY Scheme




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?




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




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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