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2017 – The Year Policy Will Determine Property Drift

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2017– The Year Policy Will Determine Property Market Drift

Four heavyweight policies – RERA, GST, PMAY, REIT – to redefine 2017 property markets

Should you buy the house you have shortlisted now or in three months after the RERA and GST have kicked in? Will commercial property investments yield better returns after REIT comes in? Is it wise to invest in PMAY projects?

Assessing the impact of impending policy on your real estate purchase is a near impossibility today. However, let that not be a cause of worry for you. These policies will take time to play out in the market but will determine future trends.

RERA: Real Estate Regulation Act (RERA) is the silver lining that the industry weary consumers have been waiting for.

From May 1, the Real Estate (Regulation & Development) Act will come into force pan-India. The new law is expected to bring in more transparency and accountability. So what does RERA do?

A regulation that was specially crafted to protect the rights of the consumer, the Centre has made it important for the states to set up a State Real Estate Regulatory Authority by May 1. This body could be approached for grievance redressal against errant builders.

So what are the problems RERA can resolve? If your developer has collected money from you but has not used that to complete your project on time that is something that RERA will address. If the quality of the project does not match the promised specifications, RERA is expected to address that. If the developer has sold to you expecting approvals and those have not come through, RERA authorities are expected to address that. In short, RERA is a regulator that is expected to ensure that consumers get what they pay for. In effect RERA will be to real estate what SEBI is to the stock markets and IRDA is to Insurance markets.

There are many important provisions in the new law which will directly control the fly-by-night builders. Builders cannot launch projects without having the necessary approvals in place. Not only that, they are mandated to display the approvals for public scrutiny. For all commercial and residential real estate projects where the land is more than 500 sq m or has at least eight apartments, registration with RERA authorities is mandatory. If a developer fails to do so, it will attract a penalty of up to 10% of the project cost and can even land them in jail. The developer has to keep 70% of the money collected from home buyers in a separate account to meet the construction cost of the project.

The Centre has warned states of making dilutions in the state RERAs and has asked them to set up the body by May 1. While speaking to Magicbricks in an interview, Minister of Housing and Urban Poverty Alleviation M Venkaiah Naidu said, “The Real Estate Act is one of the most consumer friendly laws passed by the Parliament and states have no power to dilute its provisions.” This law, which was widely welcomed and appreciated, benefits both the buyers and sellers of real estate besides enhancing the credibility of the sector. There is lot of hope and expectation from this act by all the stakeholders.

Pradhan Mantri Awas Yojana: By giving infrastructure status to affordable housing in the Union Budget this year, the Centre has affirmed its goal to provide a pucca House to every Indian family by 2022. However, 2017 is the year the government has experimented with widening the scope of affordable housing to include the middle classes as well. Launched for one year, this effort is an experiment to see how cheaper finance and interest rate subventions make home buying easier for the masses.

After getting infrastructure status, the affordable housing segment received an allocation of 39% higher funds under the Pradhan Mantri Awas Yojana (PMAY) for FY-2018, against FY-2017. Moreover, the government has extended the Credit Linked Subsidy Scheme (CLSS) from EWS (Economically Weaker sections) and LIG (Lower Income Group) to MIG (Middle Income Group) by allowing loans by those with income levels of Rs 18 lakh, at subsidised interest rates.

Also, the criteria for a project to fit under affordable housing have changed to 30-60 sq m carpet area from 30-60 sq m built up area. As per data with the government, at present there is a shortage of about 60 million housing units (20 million in urban areas and 40 million in rural areas). The government, therefore, expects the private sector developers to come forward and enter this segment.

In the past week during the investiture of the new CREDAI (Confederation of Real Estate Developers’ Association of India), President Jaxay Shah, members launched 375 affordable projects across the country. With an investment commitment of Rs 70,000 crore, these projects will involve development of over 86 million sq ft to build a total of 2.37 lakh housing units. CREDAI is talking to its national banking partner State Bank of India (SBI), to create special financial packages both for home loans and for construction finance to these projects.

GST – new tax regime from July to impact real estate

The unified Goods and Services Tax (GST) will be applicable across the country on July 1 and its impact on real estate market is yet to be seen. However, M Venkaiah Naidu, Union Urban Development Minister has on several occasions assured that GST will not cause a rise in property prices. He has also promised there will be zero service tax on affordable housing.

There is a four-tier rate structure of 5%, 12%, 18% and 28%, and a cess on the peak rate for demerit and luxury goods as decided by the GST Council. Though there is no clarity yet, it is expected that the GST rate on the housing sector will be around 18% on a finished house, yet to be registered.

First REIT is expected by June 2017

The real estate industry has been waiting for a REIT listing since 2014, and if experts are to be believed, 2017 may well be the year of Real Estate Investment Trusts. To make the passage of REITs in India easy, SEBI has brought in several changes in its structure. Also, the 2016 Union Budget had abolished Dividend Distribution Tax, which was seen by many as the biggest hurdle for REITs. Developers and investment trusts such as Embassy, Blackstone, Brookefield, Singapore-based GIC and Canada Pension Plan Investment Board (CPPIB) are expected to list REITs this year. JLL estimates this to be a Rs.1.25 trillion opportunity with over 229 million sq ft estimated to be REIT compliant.

Source: Realty Fact

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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Regulations

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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