On November 8, 2016, the Government of India de-notified currency notes of Rs 500 and Rs 1,000 as legal tender. The temporary shortage of cash adversely impacted several sectors that depended on cash, notably R
On November 8, 2016, the Government of India de-notified currency notes of Rs 500 and Rs 1,000 as legal tender. The temporary shortage of cash adversely impacted several sectors that depended on cash, notably wholesale markets, the informal sector and even parts of the real estate industry. The real estate industry involves both, formal as well as informal sector stakeholders.
By some estimates, the real estate sector itself is a significant repository of unaccounted money in India, usually by way of property purchased in ‘benami’ form in cash. By other estimates, about 30% of monies changing hands within the real estate transactions are unaccounted.
A key purpose of demonetisation was to eliminate such unaccounted cash in such transactions.
Ironically, while the purpose of using of unaccounted cash in a real estate transaction has been to avoid taxes and reduce the effective cost(s) of transaction, they have actually, in effect, been instrumental in driving up pricing within the real estate sector.
This has been so, because of a steady supply of real estate assets that may not find actual physical use in the near future but provide suitable avenues for ‘parking’ of unaccounted monies. The step of demonetisation has essentially caused the demand to temporarily, if not permanently, slow down in the purchaser segments which have traditionally used real estate to ‘park’ unaccounted monies. In terms of the supply stock, this has affected sales in the secondary market, as well as assets developed at a small scale, viz., petty contractors working as developers.
Demonetisation has hit the real estate industry in three ways: Slowdown in production, including stoppage of new launches. Shifting of demand and reduced purchaser interest in new products. Prices being lowered to clear ready inventory. See also: Is the post demonetisation period, a good time to invest in property?
Remonetisation: Will real estate prices come down or go up? The argument in favour of higher property prices
Prior to demonetisation, deals between developers and land owners often used to be entirely cash-based.
If cash transfers are made illegal for land-based transactions, there is a real possibility that land owners will load the tax costs on the price to the developer and in turn, the developer will load this cost back to the purchaser. This will increase the prices of the real estate product, but with no substantial gain in margins for the developer.
The argument in favour of lower property prices
The focus is now to provide value-for-money homes that can attract more buyers with a lesser budget. However, these stocks are often produced in areas that have limited connectivity to places of work and lack basic economic and social infrastructure. Consequently, there is little value, in terms of usability of such an asset.
However, the asset is still worth investing into for speculative long term capital gains. There are no real recurring costs involved in holding the asset without using it. By some estimates, over 60% of housing stocks produced in the last five years within the central National Capital Region, is reported to be unoccupied. If these vacant stocks were to be subjected to a significant holding tax or penalty, it will become unattractive for speculators to invest into and in turn, reduce demand for paying high prices. At such a juncture, even if taxes paid by a seller of land is front loaded on to the final price at which the real estate asset is transferred to the purchaser, the developer may not mind cutting profit margins to ensure that the price still stays affordable.
How the Real Estate (Regulation & Development) Act will impact the market The Real Estate (Regulation and Development) Act (RERA), 2016 came into existence after almost eight years of deliberations, largely fuelled by concerns over unscrupulous practices of developers, such as delaying of projects, demanding unscheduled or unaccounted payments without actually delivering the product, misrepresentations, etc. The Act makes it mandatory for promoters to register all projects with the State Real Estate Regulatory Authority, along with extensive information about them, the project implementation schedule, layout plan, land status, government approvals, sub-contractors, etc., which will be made available to consumers.
All commercial and residential projects with a plot area of more than 500 sq meters or eight apartments inclusive of all phases, will have to be registered with the authority. Projects which have not received a completion certificate and are ongoing will also be required to be registered with the authority, within a period of three months of the commencement of the Act.
Conclusion The exercise of demonetisation and subsequent remonetisation, has posed new challenges for the real estate sector, which was already gearing up for compliance with the RERA. The key aspect that needs to be addressed, is the fact that operating costs for the real estate industry may go up while demand may continue to rationalise to the extent where potential purchasers refuse to (or are unable to) pay beyond a certain price. While affordability and the ability to pay for a house has been enhanced to an extent, through introduction of subsidies in interest rates, the prices at which houses are sold remain on the higher side.
Under Construction Flat Booking Finds Tax Deduction Under Time Constraints
If a buyer makes a transaction to book an under-construction flat and if he acquires it within the three-year period of the sale of his old house, then he is entitled to a tax deduction, says a ruling from the Mumbai bench of the Income-tax Appellate Tribunal (ITAT). If an apartment is booked in an under construction project than it must be viewed as a method of constructing residential tenements, says the December 18 judgment.
That means if the buyer uses the entire gain from the transaction to buy another house within two years or construct another house within three years. The two- and three-year period applies even if the buyer bought another house a year before selling the first one. But the property should have been bought in the name of the seller.
It is mandatory that within a period of two years after or one year before the date of transfer of old house, the taxpayer should construct a residential house or acquire another residential house within a period of three years from the date of transfer of the old house. The date of receipt of compensation will determine the period of acquisition or construction in a case of compulsory acquisition.
This exemption is effective and can only be claimed in respect of one residential house property purchased/constructed in India. In the case of multiple house purchases or constructions, the exemption under section 54 will be available in respect of one house only. Any purchases made outside the country does not fall under any kind of exemption. Section 54 gives relaxation in such cases by providing relief to the taxpayer who sells his residential house and acquires another residential house from the gained capital.
After the sale of an asset, the difference between the buying price and the selling price is a capital gain or a capital loss. These are further classified as long-term or short-term. If a property is held for 24 months or less, with effective from 2017-18, then that asset is treated as Short Term Capital Asset. Then an investor can make
treated as Long Term Capital Asset. Then only a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) can be made on that investment.
ITAT agreed that booking of a new flat in an under-construction apartment should be considered as a case of “construction” and not “purchase”, hence following the earlier decisions of the Bombay high court and the tribunal itself. Further ITAT allowed the fact that the construction can began prior to the date of sale of the old asset. Same was stated in the earlier judicial decisions of the Karnataka high court and Ahmedabad ITAT, that the date of commencement is not relevant but it is the completion of construction that comes in relevance to section 54.
HDFC and Quikr Make A Deal
According to a deal between HDFC and Quikr, a stake of more than 3 percent will be given to the mortgage giant in return to its transfer of offline and online real estate brokerage business to the classified ads platform.
After acquiring Commonfloor in 2016 Quikr already has a major presence in online real estate broking.
“Most of the searches for real estate are moving online. Quikr has a much bigger presence online. Through this deal, we are partnering Quikr in the broking business,” said HDFC MD Renu Sud Karnad. According to her, this deal will strengthen Quirks position with offline support.
The deal suggests that HDFC will transfer to Quikr its entire shareholding in HDFC Realty, a real estate brokerage platform, and HDFC Developers, which runs the HDFC RED online platform.
Karnad added that the deal expects Quikr to generate home loan leads for HDFC. The transaction consists of a co-branded alliance between both parties and the HDFC brand will continue to be used online for a year.
The e-real estate classifieds platform HDFC RED has around 7,000 project listings and generates traffic of over 80,000 unique visitors per month. HDFC Realty has a 300-member, in-house sales team, and 7,000-strong nationwide broker network. Avendus Capital was the exclusive financial adviser to Quikr while Kotak Investment Banking acted as the exclusive financial adviser to HDFC on this.
30 million monthly users make Quikr India’s largest classifieds platform. It runs multiple vertical businesses across real estate, automobiles, jobs, services, and goods. The Quikr Home, its real estate vertical generates 3.5 million monthly unique visitors.
Both companies intend to work closely and conduct analytics and identify potential homebuyers, and therefore home loan customers, early in their home-buying journey. Quikr founder and CEO Pranay Chulet said, “We see great synergies between Quikr and HDFC as we start working together to bring a seamless online-to-offline platform to developers and consumers.”
Retaining The Sustainability: GRIHA Launches Star Rating For Urban Homes
Green Rating for Integrated Habitat Assessment (GRIHA), is the National Rating System of India, a Sanskrit word meaning – ‘Abode’. Human architecture has always consumed resources in the form of energy, water and material from the environment. From their construction to operation, these habitats absorb the resources throughout their life cycles, emitting wastes in the end. This emission could be direct in the form of municipal wastes or indirect emission into the atmosphere, such as from electricity generation. Hence GRIHA was formed to reduce an architecture’s resource consumption, waste production and overall environment impact up to certain national acceptable limits.
In attempt to quantify all these aspects, like energy consumption, waste generation etc. GRIHA tries to manage, control and bring down the respective to the best possible limit. Being a rating tool, it helps people to assess the performance of their respective projects against the national benchmarks.
Hence it becomes an evaluation of the environmental performance of an architecture on a holistic level. Covering its entire life cycle, this evaluation provides a specific standard for a ‘green building’. This rating system aims to strike a balance between established institutions and emerging concepts, on a national as well as the international level.
The process starts with an online submission of documents according to the criteria. Then a team of professionals and experts from GRIHA Secretariat takes a site visit for the evaluation of the building. There are four different sections categorized by 34 criteria in GRIHA rating system. Some of them are site selection and site planning, conservation and efficient utilization of resources, building operation and maintenance, and innovation.
Sanjay Seth, CEO, Green Rating for Integrated Habitat Assessment (GRIHA) Council says, “A rating between one and five stars is being provided, helping the costumers to know about the sustainability of the houses”.
According to the Union Minister, Hardeep Singh Puri, the climate resilient and sustainable buildings are the need of the hour. As the government is aiming to construct around 1.2 crore houses for the urban poor under the affordable housing scheme.
In one of his keynote addresses, Andreas Baum, Ambassador of Switzerland to India and Bhutan said that the Indo Swiss collaboration is operating with the Indian Bureau of Energy Efficiency in the development of guidelines for energy efficient housing.
“At present India is witnessing a rapid urbanisation, if each building becomes greener than the last one, then we have a huge opportunity and hope for our country. We need to look beyond the conventional methods of building, in order to provide our citizens with a good quality of life. Hence, GRIHA gains important in meeting our national goals with respect to a sustainable society”, says Dr Ajay Mathur, director general, TERI & president, GRIHA Council.
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