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India’s Real Estate Sector: Can RERA Become a SEBI?

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Real Estate Sector

With property developers to be monitored, delays in real projects expected to fall

The Real Estate (Regulation Development Act) or RERA has come into effect from today (May 1, 2017). The idea is to regulate the real estate market and help buyers who are often cheated by promoters by either delaying projects or sometimes not delivering the projects at all.

The RERA is a welcome step. RERA is expected to build in the accountability, transparency, and efficiency in the real estate market. Real estate developers will now have to deposit 70 percent of the money collected from real estate investors (or buyers) into a separate bank account for new and ongoing projects. All the projects will be registered with the regulator.

In a case of delays, developers will have to pay in the interest of 2 percent above the State Bank of India (SBI) marginal cost of lending rate (MCLR) to the buyers. On the other hand, even the buyers, in a case of delay of payments will have to bear a similar cost.  Since the developers will be monitored very closely, the number of delays in real projects should ideally fall. But what really needs to see is if the RERA can be as effective as the capital markets regulator, Sebi.

The real estate business in India operates on the principle of “Buyer Beware”. This means that the buyer is completely responsible for his decisions to invest into a real estate property. This is different from the equity markets where the “Buyer Beware” principle still holds the ground but there is Sebi, the regulator that keeps a watchful eye on all the participants of the equity market to allow for fairness and see to it that no single party gets to dominate a deal.

Sebi also punishes promoters who are accused of insider trading. Sebi has put a careful risk management process that benefits both the end customer as well as the capital market broker.

In the mid-1990s the capital market broker was a deal maker and then he started to give value added services to his customer and eventually became their financial advisor.  The most successful capital market brokers who have lasted over the past 20 years – through various stock market peaks and troughs are those who cared for the long term benefits of their customer and they were the ones who had advised their customers from staying away from the dotcom boom of 2000 or the infrastructure boom of 2007.

Today the real estate broker does not give any value added services to the customer and does not care for the long term benefits of the buyer. This hopefully will change now.

“The unorganised world of real estate broking in India would see a new paradigm with the implementation of RERA 2016. From being merely a facilitator between buyers and sellers, brokers will now have to adopt a bigger advisory role attached with responsibility for projects and disclosures,” says Shishir Baijal, chairman and managing director, Knight Frank India.

“The survival of broking firms will depend on how they inculcate a corporate culture in dealing with both the stakeholders. It is good that brokers have been brought within the ambit of RERA and any deviation would invite penal actions. Although there would be teething problems the move will see the emergence of a new consolidated broking fraternity”, Baijal adds.

In the real estate market we have seen that the seller of real estate properties always had an unfair advantage over the buyer. The seller could collect the money from the buyer and depending upon the real estate company or the market situation, deliver or not deliver the project on time.

In many cases there were project delays and cost escalations which were all borne by the buyer. Court cases took a long time and in general the defaulting real estate developer would figure out a way to survive.

Today there are only eight states and five union territories that have notified the rules under RERA. But to be a very effective market regulator RERA will need to have all the states having similar rules under its authority. But having similar rules will be difficult because the stamp duties paid in different states varies from each other.  That is also the reason why RERA may not be like the Sebi, which regulates a market that has the same rules of trading across India.

But the RERA is one of the best things that has happened to the real estate sector – which is highly illiquid — and it will now make real estate a serious asset class for investors. There will be many products that will be launched in the near future with real estate as an underlying asset.

“The implementation of the RERA-2016, is widely expected to increase transparency and accountability in the real estate sector, while improving its ability to attract institutional capital.  This augurs well for all stakeholders with a long-term vision for the sector, including developers, investors, agents and consumers.   The real estate sector might witness the beginnings of a fresh uptrend, driven by improving consumer sentiment in anticipation of higher transparency and efficiency, renewed confidence in the economy, and lower home loan rates”, says Sunil Sharma, vice president (CRM and Marketing) at Mahindra Lifespaces.

Source: Fobes India

Ahmedabad Real Estate News

Under Construction Flat Booking Finds Tax Deduction Under Time Constraints

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Tax Deduction

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.

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India Real Estate News

HDFC and Quikr Make A Deal

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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.”

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Retaining The Sustainability: GRIHA Launches Star Rating For Urban Homes

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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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