The full page article highlights the effect of GST and RERA on realty division.
The Real Estate segment contributes around 9% of India’s GDP and is the second largest employer, after agriculture.
Indian land is witnessing a ‘systems re-boot’ that started with demonetization, the enactment on benami properties, RERA Act and now, Goods and Services Tax. The Union Budget for 2017-18 additionally furnished affordable housing with infrastructure status, coupled with the Pradhan Mantri Awaas Yojana (PMAY) to incentivize affordable housing production with interest subvention schemes.
Impact of RERA on Reality Sector
The real estate sector, which till now was disorganized, will be regulated with the Real Estate Regulation and Development Act 2016 (RERA) and GST. The buyer will be more ensured and greater transparency in the sector will be visible after the Government through legislation passed the RERA, which puts accountability on the developers in terms of financial disclosure, timely development of projects and maintaining good corporate governance practices. Additionally, in order to curb diversion of funds the developer will now have to deposit 70% of the project funds in a separate account which can only be used for the earmarked project. The Act also restricts developers from changing plans post approvals without the consent of the buyers further empowering the buyers hence, smaller developers would find it difficult to meet their cash flow requirements due to prohibition on pre-sales until a project is registered post approval with the regulatory authority. This would require the small developers to merge or tie-up with large developers and then co-develop properties. “RERA, when gets functional will have a significant impact on the real estate sector. Initially in the first 6-12 months, there would be some confusion, but in the long run, it will definitely be beneficial.
Impact of GST on Reality Sector
The GST is the single-biggest tax reform to be ever introduced in India. GST aims at eliminating the difference in indirect taxes applicable across various states. Leasing of land, renting of buildings, as well as EMIs paid for the purchase of under-construction houses will attract the Goods and Services Tax, the new indirect tax regime.
The current rate of 12% on under construction projects might marginally bring down prices in the affordable segment owing to the input tax credits, but it is unlikely that similar impact will be felt in mid-priced or premium developments. One more area that needs immediate attention is stamp duty. It will continue to remain in force even after implementation of GST and the rates are varying for different states. The additional burden on the sector on account of the stamp duty averages 5%-7%. Commercial leasing transactions, which constitutes a major portion of overall commercial property business in India, will see an immediate increase of 3% in occupier commercial leasing costs.
The biggest impact will the double whammy of RERA and GST at the same time on the Residential Sector. Both of this would seriously affect supply and lead to further increase in prices”
With RERA, GST and Demonetization, 2017 is marked as one of the most crucial years for the sector. “
Publication / Source: Afternoon DC & Business today.