The year 2017 was a game changer for the real estate sector. With challenging reforms like Demonetization, making their way into the market, impacting the realty sector on high levels. Then came the big regulations such as Real Estate (Regulation and Development) Act and GST, which brought transparency and accountability, hence organising the realty market. Coupling the Demonetization with the imminent implementation of RERA and GST resulted in a major slow-down in terms of real estate sales.
A constant turmoil went throughout the industry during this period, but gradually the trends began to change, as the buyers started to look for ready flats instead of under-construction flats. Such major factors changed the ways of business operation of the developers. A relief was felt among the home buyers as their rights were now protected by RERA, hence generating a wave of confidence to invest more in the real estate market.
With an unlimited possibility of investment, the real estate sector proved to be one of the best choices among the masses, as every investment guaranteed a sure shot return. But the real estate sector stumbled at the implementation of the Real Estate Regulation & Development Act (RERA) and generated a large number of unsold units, ultimately bringing down the prices. With deliveries on time and transactions going transparent, these excessive number of unsold units, brought customers a luxury of choosing the properties of their choice at their budgeted prices.
Till date, about 223 housing projects have registered under Tamil Nadu RERA. About 1100 projects and realtors have registered in Gujarat, with MahaRERA with more than 14000 registered projects. To curb down the complex cascading tax structure and cutting tax burden on consumers, the Goods and Services Tax (GST) was introduced on July 1, 2017, in line with ‘One Nation, One Tax’ model. This new tax was only applicable to under-construction projects and hence made the ready-to-move-in apartments, a more attractive option for the buyers.
Not satisfied with the current rate of GST, the National Real Estate Development Council (Naredco) has recently urged the government to halve the GST rate for the real estate sector to 6 per cent to help boost demand for new homes.
The tax authorities began cracking down on the Benami assets after the amendment of the Benami Transactions(Prohibition) Amendment Act. Till date, the income tax department has been able to seize 541 properties. Moreover, funds of about Rs 1,800 crore in various bank accounts are being frozen and more action is expected soon. In its next step, the government is planning to crack down on Benami properties by making it mandatory to link Aadhaar with property transactions.
The affordable housing sector might see a jump in sales, after the revision of the carpet area for the Middle Income Group (MIG) category under the Pradhan Mantri Awas Yojna (PMAY) scheme. An increment of about 90 sq m to 120 sq m in MIG-1 and 110 sq m to 150 sq m in MIG-2 were made in the carpet area. Providing the middle income home buyers with bigger and better houses.
These toughened laws are pushing the non-complying companies into a merger with the bigger players. Hence eliminating the delay and other setbacks, the consumers are being more protected, the increasing purchases in the real estate market are finally turning it into a global market.
Mumbai Real Estate Sees NRI Homecoming After Two Years
When it comes to invest in real estate in India, Mumbai attracts the maximum interests from the Non-Resident Indian (NRI) community. Despite the highest property prices in the country, Mumbai continues to garner attention as the most sought after investment destination in India. In the current scenario, a stable government in the centre and a growing economy has ensured a sustained preference by the NRIs.
Earlier NRIs constituted 20% to 25% of sales in the Greater Mumbai real-estate market but during the last two years, the market has seen a dip of about 7% in this sector. This has happened due to various factors such as frequent changes in rules and regulations and delayed possession, a lack of transparency and the exorbitant pricing. The real estate sector went under the big change with the Demonetization, which effectively pointed it away from cash transactions. Then followed a series of new regulations such as RERA, GST, which had a tremendous effect on the market, taking it down a slow path as the potential buyers and investors opted to wait for a better opportunity.
As most of the states started to fall in line at the initiation of the implementation of the Real Estate Regulation & Development Act (RERA). The landmark law finally brought the long awaited transparency and accountability requirements for developers into the system. The Goods and Services Tax (GST) impacted the business operations of the developers. Affecting the older ways of working, Demonetisation did not affect self-governing developers with the right products targeted at the working masses. Therefore, the rest realised the importance of reforming of the business models, in order to improve the potential of the market.
Hence after the dearth of two years, NRIs have slowly started to purchase property in the Mumbai region. All owing to the Real Estate Regulatory Authority (RERA) and a liberal home loan regime, which are together acting as great confidence-boosters. According to the latest figures by the Confederation of Real Estate Developers’ Associations of India (CREDAI), the number of attendees at the property exhibition in Dubai was a huge figure of 13,500 NRI visitors, where 210 builders showcased their projects. Also the choice of the NRIs have shifted from luxury apartments to the smaller houses, which are proving to be the better options for investment.
The encouraging reforms by the central and the state government has given a new momentum to the real estate sector. The introduction of the real estate investment trust (REITS) Act, relaxed Foreign Direct Investment (FDI) regulations and the decrement in the rate of interest has helped in replenishing the real estate sector.
Trying to boost the sales, the developers are running overseas campaign, to promote the changing face of the real estate sector. The job insecurity abroad has propelled the NRIs to buy houses, back in the country, where they can live in case if they decide to return home. There are subvention schemes that are being offered by the developers. Where NRIs has to just pay 5% to 10 % on booking and the rest after possession making it an attractive option.
“USA, UAE, Hong Kong, Singapore and Australia are seeing our seminars, roadshows and events. That are being conducted to spread the awareness about features such as the fixed deadline for getting possession, hence generating a good response. Our Andheri project has seen a 25% sales of inventory towards the NRIs,” said Rahul Maroo, senior vice-president and head of international sales at Omkar.
Karnatka RERA, GST: Co-operative Housing Societies Sees A Price Hike
After a new ruling by the court, the co-operative housing societies in Karnataka are seeing more transparent and expensive sites for purchases. The housing societies are now supposed to register under the Karnataka Real Estate Regulatory Authority and Goods and Services Tax (GST).
Earlier this year, the Karnataka State Government Employees House Building Cooperative Society and others have approached the high court, to challenge the restrictions imposed by the Real Estate (Regulation and Development) Act, 2016 (RERA Act). The retrospective operation of RERA was brought under question, as it has taken away the rights provided to the societies under the Karnataka Cooperative Societies Act, claimed the petitioners. Specifically, the restrictions imposed on their activities under the Sections 3, 4 and 13, claiming to be affecting their businesses.
RERA being an Act implemented by the Central Government. Accepted by the State Government, and formulating into its own rules and regulations. Also they have brought the cooperative societies under its purview. However, the cooperative societies have been functioning according to the regulations of Cooperative Act 1959. Hence this conflict has become the basis of the application, calling for negating the RERA.
The application argues further by claiming the status of Cooperative Societies as that of a non-profit based outfits. Where they develop layouts and distribute sites at lower rates, with the members paying amounts in small instalments. Therefore, terming this act of bringing them under the ruling of RERA as unconstitutional.
The latest ruling will affect the 50,000 cooperative housing societies in Karnataka, with the majority in the region of Bengaluru and Mysore. Till now, only one society seems to get registered under RERA. Among these thousands, the number of cooperative societies which are currently in the process of developing layouts are 10,000. These societies are now supposed to be registered under RERA.
Another part of the ruling says that GST will also be applied to all the CHSs and they need to register under the new taxation regime as their turnover collections are likely to exceed the limit of Rs 20 lakh. An 18% GST will now be applicable to any transfer fee that has been paid to the society by the new owner on exchange of ownership of flat.
As soon as the society gets registered under GST, there are various filing obligations, which had to be met. Complying with the provisions of the reverse charge mechanism, the societies have to bear an 18% GST on the payments to the unregistered service providers, such as cleaners, electricians and plumbers.
“The effect created by the Cooperative housing societies, making profit during the property boom in the Bengaluru and the other major cities of Karnataka, has come to an end. RERA and GST have finally brought a transparency to the system”, says K Chandrakanth, a member of the Karnataka Homebuyers’ Association.
2018: A Horizon Full Of Opportunities
Taking up a roller coaster ride, the Indian real estate sector has gone through some big changes in 2017. Be it a regulatory reform like RERA or an introduction of a new taxation system, GST, the market has seen various trends during this phase. As on one hand these changes brought the market to a standstill, they also brought the long awaited transparency and accountability on the other hand. RERA has brought the developers in line and made sure that the deliveries are on time and transactions are totally transparent. Protecting the buyer’s interests, this will be an essential factor for a higher growth in coming future.
This effect has resulted into a large number of unsold units, bringing down the prices. This excess supply of units has brought the buyers, a luxury of choosing the properties of their choice at their budgeted prices. It is believed that now this phase of the real estate market is ruled by the buyers and will continue to do so for some time.
New home launches across various cities of India have dropped to a significant level in the third quarter of the current fiscal. Nearly the third of a calendar year shows a drop of 40 percent in the overall number of project launches. This graph predicts that the demands will slowly gain momentum and the prices will start picking up. As builders have begun to focus on finishing their current projects as soon as possible.
The excess liquidity in the banking system have led the RBI to lower down the key lending rates. The home loan interest rates went down from 9.5 percent a year to 8.3-8.4 percent. That invites for a considerable savings in the EMI costs; enabling the consumers to take advantage of low-cost home finance, and buy a house of their own. In 2018 it is expected to continue on the same path.
After the revision of the carpet area for the Middle Income Group (MIG) category under the Pradhan Mantri Awas Yojna (PMAY) scheme, the affordable housing sector might see a jump in sales. Carpet area saw an increment from 90 sq m to 120 sq m in MIG-1 and 110 sq m to 150 sq m for MIG-2. Giving the middle income home buyers a bigger and better houses. Taking the cue, the developers are now catering to this special segment in order to clear out the stock of unsold units.
Following the trends, there is a prediction about merging of the real estate sector in 2018. The toughened RERA laws will push the non-complying companies into a merger with the bigger players. Eliminating the delay and other setbacks, the consumers will be more protected, hence elevating the level of confidence. The Foreign Direct Investment (FDI) will be boosted further, making Indian real estate a global market. The smart city initiative by the government will also enhance the social and the economic infrastructure of the many upcoming cities.
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