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
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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