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How infrastructure status will change the reality for real estate

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The Union Budget 2017-18 was announced with the theme of Transform, Energise and Clean India (TEC) was largely geared towards rural growth, infrastructure, and poverty alleviation, with a huge impetus to affordable housing. The thrust on affordable housing renews government’s vision of ‘Housing for All by 2022’, giving a cheer for the housing segment.

After a wait of several years, the government has finally awarded infrastructure status to the largely-neglected affordable housing, which is encouraging for developers. Infrastructure status will ensure easier access to institutional credit and help in reducing developers’ cost of borrowing for affordable projects.
According infrastructure status will further simplify approval process for affordable projects, create clear guidelines and increase transparency in the segment. Such a market, which will further be made accountable through the Real Estate Regulatory Authority (RERA), could attract debt and pension funds to invest in the affordable housing segment.

Further, the government has tweaked the definition of Affordable Housing projects under the scheme for 100% deduction of profits from tax of an undertaking. Earlier, flats up to built-up area of 30 sq. metres in four metro cities and up to 60 sq. metres in other cities were to be considered under the scheme, which has now been changed to ‘carpet area’ and the 30 sq.m. limit now applies to only within the municipal corporation limits of the four major metros.

 

Moreover, this time period has extended from three years of approval to five years. We expect that these moves will definitely aid supply in the affordable segment by ensuring that a greater number of projects will come under the ambit of the scheme, which has remained largely under-penetrated till now, despite immense pent-up demand. For instance, households earning up to Rs 200,000 per annum and above poverty line itself accounts for almost half of the total demand for housing between 2017 and 2020.

In order to cater to the supply, the government has targeted to build 1 crore houses by 2019 for homeless and those living in kuchha houses. Moreover, the industry will also be enthused by the Finance Minister’s allocation of Rs 23,000 crore towards Pradhan Mantri Awas Yojana, which is almost a 53% increase from that of last year.

In a major relief to housing developers, the Finance Minister has changed the time period for calculation of notional rental on unsold stock held by developers for tax purposes, which will now kick in only one year after completion.
Housing developers have been suffering from major cash flow problems in the past couple of years as there is substantially high unsold stock in most of the cities due to the suppressed housing demand. The demonetization has compounded their problems with a further slowdown in sales. This measure provides them with some relief and the opportunity to focus in pushing the sales of their stock.

For investors, the announcement regarding a reduction in holding period from gains from immovable property for long term capital gains tax from 3 years to 2 years will result in lower tax liability and help to boost individual investments in the sector.
Another matter for cheer was for joint development agreement signed for development of property, the liability to pay capital gain tax will arise in the year the project is completed. This will help in creating more positive demand for land assets for future developments.

The focus on transportation sector as a whole is a very positive and far sighted development. Transportation, including rail, roads, shipping, which has received a provision of Rs 2,41,387 crore 2017-18 along with specific announcements of creating over 3500 km of rail network and 1.40 lakh km of road network will ensure greater accessibility thereby creating more nodes of economic development. Further the proposal of having a METRO policy is a welcomed move. These will help in de- congesting the cities and create potential urban centres for future development

Scrapping of the Foreign Investment Promotion Board (FIPB) would further pave the path for foreign companies to invest in India. At a time when the government is pursuing its ‘Make in India’ mission and further liberalizing FDI norms across sectors, this move will go a long way in reducing bottlenecks for foreign investors from certain sectors such as defence, aviation, banking in the country.
Some of the aspects that the Union Budget missed, and those that could have created a better impact on the real estate sector include, lack of provisions for increasing the tax deduction for interest paid on housing loans which could have been a welcomed relief and a morale booster. Further, as many from the real estate sector had commented before the budget, some additional benefits for first time home buyers could have been included to provide the additional impetus.

The Budget also did not address crucial aspects like SEZ policy or provide any further tax relief for SEZ. This is critical as globally Free Trade and low tax zones have a significance in creating the right environment for economic growth..

Over all this is an extremely sensible budget that focusses on promoting long term and sustainable growth even as the country and its economy faces many headwinds from global issues such as BREXIT, US politics, increasing oil prices and general uncertainty.”

 

 

 

 

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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