Top 10 policy initiatives that have impacted the real estate sector in India
The most widely discussed initiative by the government that has impacted both home buyers, builders and property agents alike is the demonetisation of Rs 500 and Rs 1000 notes, majorly used for real estate transactionsreal estate Updated: Dec 12, 2016 15:12 IST
The real estate sector was in the news all through the year, with the government announcing several major policy initiatives such as the passage of the Real Estate (Regulation and Development) Act 2016 and the amendment to the Benami Transactions Act. But the most talked about was the demonetisation of Rs 500 and Rs 1000 currency notes used mostly for real estate transactions.
Some policy initiatives listed by international property consultants Colliers Research included the following 10 policy initiatives
1) Real Estate (Regulation and Development) Act, 2016: The Real Estate (Regulation and Development) Act, 2016 which came into force in March 2016 has laid down a regulatory framework which will change the way the real estate sector operates in India. It aims to enhance transparency, bring greater accountability in the realty sector and set disclosure norms to protect the interest of all stakeholders. Speedy execution of property disputes will also be ensured in due course .
2) Amendment to the Benami Transactions Act: 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 from such transactions and levying penalties to increase the institution-investor participation and regulating the sector to make India an attractive investment destination.
3)100% deduction in profits for affordable housing construction: To promote affordable housing, the finance minister proposed 100% deduction in profits to an undertaking from a housing project for flats of up to 30 sq metre in four metro cities and 60 sq metre in other cities. These projects have to be approved during June 2016 to March 2019. Another condition was that the project should be completed within three years of grant of approval.
4) Interest subsidy for first-time homebuyers: To stimulate housing demand from first- time home buyers, the Union Budget 2016-17 also proposed deduction of additional interest of Rs 50,000 per annum for first-time home buyers for loans of up to Rs 35 lakh sanctioned during the next financial year for houses with a value not exceeding Rs 50 lakh. This move should positively influence home sales in non-metros in the long term where residential product prices are not as high as those in metros.
5) Change in arbitration norms for construction companies: To help the ailing construction sector, the government has cleared reforms including speedier resolution of disputes and the release of 75% of amounts that are stuck in arbitration. The government will now release 75% of amounts against margin-free guarantee in cases where arbitral awards have been given but have been contested. The amount released will be used by contractors to complete projects or pay off debts. This is aimed at improving the cash flow position of large developers who have significant exposure in infrastructure and government contracts and eventually help in speedy execution of large infrastructure projects. Coming at a time when most developers are struggling with liquidity issues, this is a boon from an overall perspective..
6) Service tax exemption on construction of affordable housing: Exemption of service tax on construction of affordable houses of up to 60 square metre under any scheme of the Central or state government including public private participation or PPP schemes will 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.
7) DDT exemption for SPVs to REITs: 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. This paved the way for the REIT model to become financially viable for retail investors.
8) Implementation of Goods and Services Tax structure: Goods and Services Tax (GST) is a positive move towards simplification of Indian tax system. However, the real estate industry is still awaiting clarity on which items fall into “sin” and “common use” and whether they will attract 18%, or 12% 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.
9) Currency demonetisation of 500 and 1,000 rupee notes: The recent demonetisation of Rs 500 and Rs 1,000 rupee notes by the prime minister is perceived as a significant reform. In the long run, this measure along with Real Estate (Regulation and Development) Act, 2016 (RERA) will align the real estate sector to the international standards of doing business, resulting in more fund flow from institutional investors, banks and higher unit sales.
10) Permanent Residency Status for foreign investors: The Union Cabinet approved the grant of Permanent Residency Status (PRS) to foreign investors, subject to various conditions and with a provision for renewal for another 10 years. As PRS allows the holders’ spouse/dependents to take up employment in India, as well as the purchase of one residential property for end-use, the end user pool, mainly for high-end and luxury segment products stands increased which can promote the asset class in a big way.