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Budget 2017: A win-win for home buyers and developers

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Budget 2017

How developers gain?

In a move to provide required boost to the affordable housing segment, Finance Minister Arun Jaitley in his budget speech granted infrastructure status to the affordable housing schemes in the country. This will allow the developers to enjoy the associated benefits.

“Giving the Affordable Housing Sector Infrastructure status, will propel growth in the segment and lead to higher consumption. This will also lead to growth in the affordable home loans business, where a lot of players have taken positions and new lenders have emerged. Exciting times ahead for affordable housing and affordable home loans players,” says Parth Pande, co-founder & CEO of Finance Buddha.

Kishore Pate, CMD- Amit Enterprises Housing Ltd says, “Affordable housing been given infrastructure status will mean cheaper loans for developers of budget housing and significantly boost the Government’s target of Housing for All by 2022.”

The total allocation for infrastructure is a whopping Rs 3,96,135 crores in 2017-18. “This is very good news for the real estate sector, as the correlation of infrastructure with real estate growth is a well-established fact”, says Pate of Amit Enterprises.

Under the budgetary provisions, developers will get one year’s time to pay tax on notional rental income on completed unsold residential inventory. Also, the time limit for capital gains to be considered as a long term gain has been reduced to 2 years from the earlier 3 years. This will drive activity in the sector.  “More supply will enter the housing market now”, says Anuj Puri, Chairman & Country Head, JLL India.

Promoters of affordable housing will now have more time of up to 5 years as against 3 years to complete their project.

ALSO READ:  Affordable housing gets infrastructure status in Budget

How buyers gain?

Finance Minister, in his speech announced change in size requirements of affordable house from built-up area to carpet area of 30 sqm and 60 sqm was a welcome measure. The 30 sqm limit will apply in case of municipal limits of 4 metropolitan cities and for rest of the country, limit of 60 sqm will apply. This move will make houses more spacious.

The budget also proposes to complete 1 crore houses by 2019 for the houseless and those living in kutcha houses. Allocation to Pradhan Mantri Awaas Yojana Gramin was also raised from Rs 15,000 crores in BE 2016-17 to Rs 23,000 crores in 2017-18. “The Budget however, missed out on providing any additional income tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums. Nor did it raise house rent deduction limits”, points out Puri of JLL India

Modi government had earlier announced interest subvention scheme for housing loans. Combined impact of Modi led government’s earlier initiatives and budget reliefs will provide much awaited boost to the real estate sector. Demonetization had created surplus liquidity in banks allowing them to reduce their lending rates on home loans. State Bank of India and Axis bank have reduced rates by 50 bps followed by ICICI bank which has lowered the rates by 45 bps. 1 BPS is equal to 0.01%. Further in Budget 2017-18 it was announced that the National Housing Bank (NHB) will refinance individual housing loans of about Rs. 20,000 crore in 2017-18.

A reduction in home loan rates brings down the cost of purchasing house, making it more affordable. “A 50 basis points reduction in a home loan over 20 year tenure on 80 per cent of Rs  1 crore apartment of the purchase price will bring down the effective price by 4.11 per cent”, says Amit Oberoi, National Director, Knowledge Systems at Colliers International India.

If developers receive benefit, they will be able to pass on the same to the buyers in form of lower prices. Simultaneously, if buyers get funds at cheaper rates, they will create more demand in the sector. We may soon expect to see some growth in the sector.

Source: businesstoday.

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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