Connect with us

Regulations

Union Budget 2017: Ten proposals that are likely to influence real estate

Published

on

Union Budget 2017: Ten proposals that are likely to influence real estate

The Union Budget 2017 promises to continue economic reforms, control inflation and prudent fiscal management. However, it provides little impetus in the short term to the real estate sector other than a boost to the affordable housing segment.

The Union Budget 2017 promises to continue economic reforms, control inflation and prudent fiscal management. However, it provides little impetus in the short term to the real estate sector other than a boost to the affordable housing segment.

“The infrastructure status for affordable housing and tax relief for real estate developers are positive steps but not enough to boost residential sales in the short term. The government has provided up to Rs 12,500 income tax benefit to individuals, which is insufficient to provide the demand side push to the sector,” says a research report by Colliers International.

Here are ten Budget proposals that are likely to influence the realty sector going ahead:

1) Infrastructure status to Affordable Housing – boost for affordable residential sector

Impact: Union Budget 2017-18 granted the much-demanded “Infrastructure” status to affordable housing. The step is well aligned with the government agenda of ‘Housing for All by 2022’. This will allow easier access to capital for developers, at a much lower rate with a longer amortisation period. In addition, it allows developers access to viability gap funding and tax incentives. For affordable housing purpose instead of the built up area of 30 and 60 sqm, the carpet area of 30 and 60 sqm will be counted. The 30 sqm limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including the peripheral areas of metros, limit of 60 sqm will apply.

The government has also extended the time of completion of such projects from 3 years to 5 years. Buyers of affordable housing got a boost with the announcement of interest subvention of 4% and 3% on loans up to INR0.9 million (USD13,318) and INR1.2 million (USD17,758), respectively. The proposed deduction of the income tax rate to 5% for taxpayers having income less than INR0.5 million per annum (USD7,400 million) will increase the disposable income of the common man which will, in turn, raise spending power and increase investment in the affordable segment.

Thus, “more projects will now be eligible for profit-linked income tax exemptions. So far, we have seen limited participation from private developers in the affordable housing segment despite high demand. Profit-linked exemption along with the infrastructure status for affordable housing will push developers to undertake more affordable housing projects, thus increasing private player’s participation in the sector,” said Amit Oberoi, National Director, Knowledge Systems, Colliers International India.

2) 10 million homes to be built by 2019 for the homeless and those living in kutcha houses

Impact: To stimulate the rural housing sector in India, INR230 billion (USD3.4 billion) has been allocated under the Gramin Pradhan Mantri Awas Yojana. In line with their aim to promote affordable housing not only in cities but also in rural areas, the government intends to complete 10 million homes by 2019.

Currently, the housing sector is active mostly in Tier-I and Tier-II cities in India; however, the scheme will not only provide necessary housing to the poor but also promote the residential sector in rural areas.

3) Tax breather for notional rent income on unsold unoccupied completed projects

Impact: At present, houses that are unoccupied after getting completion certificates are subject to tax on notional rental income. Builders for whom constructed buildings are stock-in-trade, the rule will be applicable only after one year of receiving the completion certificate. The law will provide some breathing time for developers to liquidate their inventory.

4) Holding period for immovable assets reduced from 3 years to 2 years and indexation to be shifted from 1.4.1981 to 1.4.2001

Impact: This is a significant step regarding capital gains taxation provisions on land as well as buildings. Reduction in the holding period and amendment in the base year indexation will considerably reduce capital gains tax providing tax relief for several asset holders.
It is likely to increase the government’s tax base through immovable property and encourage the mobility of capital assets. With the proposed taxation provisions, property holders are more likely to engage in the sale of real estate, thereby giving a much-needed fillip to the sector

5) National Housing Bank (NHB) will refinance individual housing loans of about INR200 billion (USD3 billion) in 2017-18

Impact: The demonetisation drive towards the end of 2016 has resulted in surplus cash within the banks; thereby allowing major banks across the country to lower their lending rates.

“The lending rate cut will be welcomed by not only new homebuyers, but will also be a reason to rejoice for homebuyers who have already taken a flexible housing loan. However, the refinancing scheme from the NHB will improve the sentiment of current homeowners, especially those subjected to high lending rates in the past,” said Oberoi.

6) Increase in investment in infrastructure and development projects

Impact: Following the announcement of several major infrastructure projects in 2016, the union budget disclosed one of the biggest budget allocations for the infrastructure sector. About INR1310 billion (USD19.4) billion) has been allocated for railways and INR64.9 billion (USD0.9 billion) for highways which includes 2,000 kms of coastal roads, facilitating better connectivity between major port cities such as Mumbai, Chennai, Kochi and other cities and small towns.

Similarly, “select airports in Tier-II cities will see investment for operation and maintenance through the public-private partnership (PPP) model. The government plans to elevate the current state of infrastructure in India aiming to create a state of the art infrastructure network. Improved infrastructure is more likely to catch the attention of foreign investors and also aid and enhance investment in the real estate sector. The government is looking to upgrade airports in tier-II cities and proposed to monetise unused land assets. Another positive step is the decision to introduce a bill to resolve disputes in PPP projects,” said Oberoi.

7) Capital gains tax liability changed for Joint Development Agreement (JDA) signed for development of property

Impact: If a Joint Development Agreement is signed for the development of property, then the capital gains tax will only be paid in the year of completion of the project. Apart from several other measures to reduce capital gains tax, this step will provide tax relief not only to the landowner but also the builder/promoter, thereby decreasing their liability.

8) No cash transaction above INR0.3 million (USD4439) permitted

Impact: As one of the extensions to the demonetisation drive, the government plans to disallow any cash transaction above INR0.3 million (USD4439). The real estate sector involved several cash transactions before the demonetisation drive. However, buyers and developers had turned cautious post-demonetisation with a notable reduction in the number of cash transactions.

Thus, “in our opinion, this provision may only lead to a nominal impact on the sector in the short term, while it will lay down the foundation for a transparent economy and boost foreign investment,” said Oberoi.

9) Abolition of Foreign Investment Promotion Board (FIPB)

Impact: Over the last two years, the government has implemented several reforms to encourage Foreign Direct Investment (FDI) in India. As more than 90% of the total FDI inflows currently take place through an automatic route, the government has decided to do away with the FIPB in 2017-18.

This is in conjunction with the government’s view to further liberalize FDI norms and attract foreign investors. Under the automatic route for FDI, the foreign investors will not require any prior approval from the FIPB and will only be subject to laws defined for each sector.

10) Introduction of innovative land-pooling mechanism for development of the new state capital of Andhra Pradesh

Impact: The budget announced that the new state capital of Andhra Pradesh is being constructed by an innovative land-pooling mechanism without the use of the Land Acquisition Act. Land acquisition remained a much-debated issue and a major hurdle with respect to large-scale developments.

The new land pooling mechanism may significantly reduce land-related disputes and increase the speed of development. The exemption of capital gains tax will uplift the confidence of landowners whose land is being pooled for the creation of the capital city under the government scheme. However, the exemption is only limited to those who were the owners of such land as of June 2, 2014, the date on which the state of Andhra Pradesh was reorganized.

Conclusion

Overall, it was a positive budget for the sector and the government has done well to create awareness for the need to increase tax compliance. “Demonetisation was a temporary setback and the economy may bounce back. In particular, we look forward to the gains once Goods and Services Tax (GST) is rolled out later this year,” said Oberoi.

Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

Published

on

By

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

Continue Reading

Regulations

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

Published

on

By

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

Continue Reading

Regulations

Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

Published

on

By

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

Continue Reading

Trending