In the history of Indian Real Estate, the year 2016 has been a year of transition for the real estate sector. We all have been always talking and discussing about making the sector more organized, transparent, formal and mature. Looks like the policies and decision taken in the year had one agenda in common, i.e. to improve the ‘State of Real Estate in India’
Let’s have a quick look on the top 10 policy reforms of 2016 that impacted the real estate sector and are sure to have a spill over effect in 2017 as well:
RERA: The Real Estate (Regulation and Development) Act, 2016 which came into force in March 2016 has laid down a regulatory framework to improve India’s accountability and transparency score. Bringing greater accountability, setting disclosure norms to protect the interest of all stakeholders and also ensure speedy execution of property disputes in due course; RERA will make real estate more ‘buyer friendly’’. While a lot of states have tweaked the regulations of RERA in the interest of real estate developer and buyer, the state governments of Uttar Pradesh, Gujarat and Delhi have notified their own version of the RERA rules. While all the States are free to make their rules under the Act, but these rules can’t be in contravention of the central legislation.
Affordable housing: Affordable housing segment is growing across India. The segment saw a massive surge of close to almost double in terms of new launches in the first half of 2016. The rise in the launch of affordable housing can be attributed to a steady demand for this segment of housing in Bengaluru, Delhi-NCR and Mumbai. The government has taken initiatives to promote affordable housing. The Finance Ministry has proposed 100% deduction in profits to an undertaking from a housing project for flats up to 30 sq meters in four metro cities and 60 sq meters in other cities which are approved during June 2016 to March 2019. The project should also be completed within three years of grant of approval.
Service tax exemption: Post the budget announcement on allowing 100 per cent deduction for profits to housing projects building homes up to 30 sq metres in the four metro cities and 60 sq metres in other cities is likely to spur supply of affordable homes, demand for which makes for almost 90 per cent of the demand for homes in India. Exemption of service tax on construction of affordable houses up to 60 square meters under any scheme of the Central or State Government including PPP schemes will further propel construction in affordable segment across India and encourage greater collaboration between the public and private sector as well as participation in affordable home construction.
DDT exemption: An exemption from the levy of dividend distribution tax that was announced in Budget 2016, removed one of the major hurdles in the path of the trusts' take-off. This was expected to ease the real estate sector’s financing woes and help Real Estate Investment Trusts (REITs) take-off. The Union Budget 2016-17 exempted any distribution made out of the income of the Special Purpose Vehicles (SPVs) to the Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) from the levy of Dividend Distribution Tax thus making the REIT model to become financially viable for retail investors.
Goods and Services Tax: GST appears to be a benefactor for the real estate sector primarily in light of the expected free flow of credit, which should translate into an increase in margin in the hands of the developer. GST is expected to impart greater transparency through market mechanism, it is imperative that real estate transactions forms an integral part of the proposed GST design. Goods and Services Tax (GST) overall is a positive move towards simplification of Indian tax system. Real estate industry is still awaiting clarity on the same along with clarifications that the implementation of GST will subsume existing service tax and value added tax (VAT) which are levied for under construction projects currently.
Benami Transactions Act: Benami transaction means a transaction or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. The government will crack down on benami properties, said Prime Minister Narendra Modi as its the right thing to do to fight black money. The Benami Transactions (Prohibition) Amendment Act is in force, the government wants to act to step up its campaign against black money. The new law provides for authorities to conduct inquiries on any benami transactions. These are, the Initiating Officer, Approving Authority, Administrator, and Adjudicating Authority. Under the new law, an Appellate Tribunal will hear appeals against orders passed by the Adjudicating Authority. Appeals against orders of the Tribunal, in turn, will be heard by the High Court. The law will have long term impacts on real estate industry in the country and will increase the practice of including the correct name in property transactions. This in turn would bring transparency in residential market.
Demonetization: The recent demonetization of the higher currency notes, Real Estate saw some abrupt impact. Though the short-term pain is inevitable; the move will bring cheer if we look at the eventual long-term impact. It will align the real estate sector to the international standards of doing business, thus resulting in more fund flow from institutional investors, banks and higher unit sales.
Thus real estate went through a lot of surprising twists in the year 2016. We hope for a positive state in the coming year!