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The Future Of Indian Real Estate Market

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The Future Of Indian Real Estate Market

It won’t be wrong to say that the performance of the Indian real estate market in the short to medium term has not been that encouraging. There have been some significant changes in terms of regulations, currency issues and as a result the market is taking time to adjust to the situation. However, despite the mismatch between demand and supply, there are enough reasons to hope for a better future in the sector.

Recovery of real estate stock market

In a major announcement by the Reserve Bank of India in regards to its monetary policy took the market by surprise. Now, banks are also allowed to invest in Real Estate Investment Trusts (REITs). This will not only boost the income in the sector but will also improve liquidity. The implications were felt in the stock market, the BSE Realty index which covers the real estate sector on the Indian stock market bounced by 2%. Although this may not seem as a huge boost but keeping in mind the recent situation of the industry, this can be viewed as a positive sign. If we look at the situation earlier this year, the stock market of real estate sector has seen an impressive return of 33% on the back of recovery hopes.

Changes In The Policy

The recent policy changes made by the Indian government have made a significant impact on the real estate sector amongst mixed sentiments from investors. Many investors are holding back their new stocks from releasing in the market, as they still feel that these policy changes are yet to be implemented properly. As per recent reports, less than 5% of unsold units in the market are ready for possession. While it might take some time to clear the unsold stock, it is unlikely that developers will take on new projects for developments.

How soon can we expect the recovery?

The Real Estate Regulatory Authority (RERA), introduced by the Indian government has been seen as a welcome movie, but there are a lot of changes which is still happening in the Act. It is not only taking a lot of time but also raises the question, as to how much longer will it take to finalize everything, as there is a history of delays across the Indian regulatory sector. But because of some bold moves have been made already, there is hope that the recent regulatory changes will bring in some positive results.

One of the major issues that need to be addressed is the fall in the real estate net revenues. The net revenue was reduced by more than 30% over the two year period to December 2016, the interest rate costs percentage of total revenue also went up from 17.81% to 21.54%. So, most of the company funds were used to cover interest payment as a result there was less for investments and every day costs.

The last couple of years have not been that fruitful for the Indian real estate market for numerous reasons but situation is definitely improving and there are sufficient reasons to be optimistic. The need of the hour is to sell the unsold stock as soon as possible while maintaining complete transparency.

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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