2016 year of policy changes

News Point: The year 2016 would be referred as the year of policy changes for the Indian real estate. Some of these changes promise reforms, while others threaten to derail the growth of the sector.

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India PropertyTo say that nothing affects the fortunes of the Indian real estate more than the legislations and policy changes would be stating the obvious. By the end of every year, the analysts get busy in the cost & benefit analysis of what have been the pains and gains of the year in terms of decisions been taken at the policy level.

2016 is no different and the year will be remembered as the year of drastic, and even some dramatic policy changes. The policy changes during the year promises to goad the sector to the next level of organised, cleaner and more transparent real estate market in India. Some of these policies even threaten to affect the sector quite adversely in the short to medium term.

The top ten policy changes in 2016 that have impact over the fortunes of the Indian real estate are:

    • Real Estate (Regulation and Development) Act, 2016
    • Amendment to the Benami Transactions Act
    • 100% deduction in profits for affordable housing construction
    • Interest subsidy for first time home-buyers
    • Change in arbitration norms for construction companies
    • Service Tax exemption on construction of affordable housing
    • DDT exemption for SPVs to REITs
    • Implementation of Goods and Services Tax structure
    • Currency demonetisation of 500 and 1,000 rupee notes
    • Permanent Residency Status for foreign investors 

A report by Colliers International maintains that the real estate industry was in the news for all the right reasons in the year 2016, with the government announcing several policy initiatives. It says the Real Estate (Regulation and Development) Act, 2016, which came into force in March 2016, has laid down a regulatory framework which is set to change the way real estate sector operates in India.

“It aims to enhance transparency, bring greater accountability, set disclosure norms to protect the interest of all stakeholders and also ensure speedy execution of property disputes in due course,” says Colliers report.

Similarly, the Benami Transactions (Prohibition) Amendment Act, 2016 lays down stringent rules and penalties associated with dealings related to “benami” transactions. It establishes a regulatory mechanism to deal with disputes arising with such transactions and levying penalties as needed to increase the participation of institutional investor and at the same time regulating the business with an aim to make India an attractive investment destination.

The sector is by and large maintaining that the policy changes during the year are going to help more than hurt the business of real estate. A section of developers even maintain that the policy changes during the year have been favourable for both the developers as well as the home-buyers.

Nikhil Hawelia, Managing Director of Hawelia Group maintains that from the perspective of the developers the government has tried to promote affordable housing by proposing 100% deduction in profits to an undertaking from a housing project for flats up to 30 square meters in four metro cities and 60 square meters in other cities which are approved during June 2016 to March 2019. The fact that there has been condition that the project should be completed within three years of grant of approval goes in favour of the buyers.

“From the buyers’ perspective, the Union Budget 2016-17 proposed deduction of addition interest of Rs. 50,000 per annum for first time home-buyers for loans up to Rs. 35 lakhs sanctioned during the next financial year for houses with a value not exceeding Rs. 50 lakhs,” says Hawelia.

Kishor Pate, CMD, Amit Enterprises Housing maintains that post the demonetization announcement and the withdrawal of Rs. 500 and 1000 notes, land deals have taken a major step back across India, and residential sales in the resale market have also reduced markedly. Prices are reducing in this segment. In primary sales, reputed developers who have made it a point to do only transparent dealings via official channels have been less affected. The Real Estate (Regulation & Development) Bill was passed in March, and has already been put in force in Uttar Pradesh and Gujarat. Other states will have to formulate their RERA rules and implement the Act by mid-2017.

“The Lok Sabha passed a comprehensive Benami Transactions (Prohibition) Amendment Bill in 2016. This Bill is intended to curtail the influx of unaccounted funds into real estate. In June 2016, the Model Shops and Establishment Bill was announced. This Bill allows all retail establishments like shops, malls, cinema halls, restaurants, etc. to operate 24×7. Though it was obviously welcomed heartily by the retail sector, we have only seen varying actual response by ways of retailers keeping their operations open,” says Pate.

Analysts also point out that 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.

However, the two policies that over-shadowed all policy decisions of the year have been Goods and Services Tax (GST) and the demonetisation of high-value currency. These two policy decisions are expected to be debated and deliberated in the year 2017 as well.

While the GST in general has been seen as a positive move towards simplification of Indian tax system, the demonetisation has been taken with a pinch of salt by the larger universe of both the home-buyers as well as the developers.

For the GST, the real estate sector is still awaiting clarity on whether real estate will fall into “sin” or “common use” and whether they will attract 18%, or even higher possible tax rates. Additional clarification is also needed if the implementation of GST will subsume existing service tax and Value Added Tax (VAT), which are levied for under construction projects currently.

But for the demonetisation there is confusion and concern even among those who maintain that in the long run the move along with Real Estate (Regulation and Development) Act, 2016 (RERA) will align the real estate sector to the international standards of doing business.

In a cash driven economy like India the larger concern has still not been addressed after the demonetisation and the home-buyers are expect to maintain a wait & watch stand in the year ahead. That is not good news for real estate as the sector has struggled throughout the year 2016 to come out of a prolonger spell of slowdown.

By: Ravi Sinha

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