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The Impact Of Regulations On The Real Estate Market

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The Impact Of Regulations On The Real Estate Market

More often than not it is observed that new rules lead to greater red tape and their inappropriate implementation defeats their very purpose. Recently the government has introduced several new laws that directly affect the real estate market.

Amit Wadhwani, Sai Estate Consultants Director says, “With new regulations, there are also fears of cost escalations, as clearances could take more time than usual. It will be difficult to expect all developers, brokers and even buyers, to adapt. Operating on multiple projects could also become a challenge, as the regulator would seek details of prior projects before sanctioning new ones. With many non-delivered apartments in the market, companies would need to clear the backlog before launching new projects.”

Laws that have affected the realty market:

  1. RERA: This recent law was introduced to enhance transparency, bring more accountability in the realty sector, thus protecting the interests of all stakeholders. It has laid down a rigid framework that will change the way the realty sector operates in India.
  2. GST: The idea behind the Goods and Services Tax was to reduce the cascading effect of multiple taxes on the end-user and bringing clarity to the amount of tax one is paying for a certain product. However, it will still take 6-8 months for businesses to adapt to this new regime.
  3. Insolvency Act: The aim behind the Insolvency and Bankruptcy Code is better management of Indian companies. Better fiscal regulation among companies will ensure that the creditors are paid on time. The legal system has been given the power to deal with stressed organisations.
  4. Benami Act: The Benami Transactions (Prohibition) Amendment Act, 2016 imparts strict rules and sets up a regulatory system, to deal with disagreements arising from such dealings and charges heavy penalties on offenders. This is to promote India as an investment destination.

Have the laws benefitted the developers?

Aniket Haware, , Haware Builders managing director elaborates, “With RERA in place, developers are observing a big transition. Authentic and genuine players will be happy with this new regulation and will survive, while small players will face difficulty in terms of finance, escrow and separate accounts.”

Experts believe that Indian developers have always been restless bunch due to dishonest developers and weak policies. Nevertheless, the new policies are assuring the sincere builders for a better tomorrow. The developers are hoping that RERA will rid the system of many unreliable developers and give assurance to home buyers. This will thus help revitalise property sales. The concern, however, are the retired officers who are running the RERA office and who were part of the earlier system that was slowing down the work process. So, in spite of several new regulations, some of the old problems may persist, they caution.

Also Read: Developers Push Delivery Dates To Ignore Any RERA Penalty

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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Regulations

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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