More needs to be done to im­prove buyer ac­cess to af­ford­able hous­ing

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Mu­niesh­wer A Sa­gar mu­niesh­­gar@hin­dus­tan­

Three de­vel­op­ments in the past one month have the po­ten­tial to bring a par­a­digm shift in the hous­ing sec­tor.

First, th e Re a l Es t a t e (Reg­u­la­tion and De­vel­op­ment) Act, 2016, came into ef­fect, then the Pro­hi­bi­tion of Be­nami Prop­erty Trans­ac­tions Act was im­ple­mented af­ter 30 years of ex­is­tence, and then came the most dra­matic pol­icy to dis­con­tinue R500 and R1,000 de­nom­i­na­tion notes.

What it means?

The real es­tate reg­u­la­tory act is ex­pected to bring much-needed trans­parency in the sec­tor. The act aims to make the builder ac­count­able to the home buyer, and cre­ate a level-play­ing field be­tween the two. The set­ting up of the Real Es­tate Reg­u­la­tory Author­ity as the apex body in states for en­forc­ing trans­parency and ac­count­abil­ity in the sec­tor is ex­pected to boost de­mand in the sec­tor. It is ex­pected to bring con­sol­i­da­tion in the sec­tor with only pro­fes­sional builders stay­ing in the field. The prob­lem of il­le­gal colonies will also be checked.

The rules for pro­hibit­ing be­nami trans­ac­tion are likely to cut spec­u­la­tive trad­ing and hoard­ing of sup­ply. This will help bring down home prices.

The de­mon­eti­sa­tion pol­icy has the most im­me­di­ate im­pact on the hous­ing sec­tor. The end of the ‘cash’ or the black money com­po­nent of re­alty deals trans­lates di­rectly into price cuts. Al­ready, dif­fer­ent lo­ca­tions in the re­gion have reg­is­tered 20% to 30% drop in prices, and even sales have reg­is­tered a down­fall.

All these de­vel­op­ments au­gur well for the sec­tor, par­tic­u­larly for the buyer of bud­get and af­ford­able hous­ing.

What next?

These steps are aimed at im­prov­ing re­alty dy­nam­ics in favour of the end-user and mak­ing hous­ing cheaper. But a lot more needs to be done in the sec­tor.

Sav­ing time : Devel­op­ers have to take mul­ti­ple ap­provals from mul­ti­ple gov­ern­ment agen­cies both at the cen­tral and state gov­ern­ment lev­els. There are fre­quent changes in gov­ern­ment poli­cies, re­quir­ing devel­op­ers to re-seek per­mis­sions and ap­provals. “All this adds to the cost and time over­runs of the projects. Ul­ti­mately, the end-user ends up pay­ing both in terms of in­creased costs and de­layed or in­com­plete pos­ses­sions. The cen­tral and state gov­ern­ments must bring in re­forms to make the sin­gle-win­dow ap­proval sys­tems more ef­fec­tive and time­bound. So far lit­tle or no ac­tion has been forth­com­ing on these as­pects,” says Ramesh Negi, 66, a Panchkula-based real es­tate ex­pert. In ad­di­tion to mul­ti­ple ap­provals, there are a plethora of laws, rules and reg­u­la­tion, which both the buyer and the seller have to com­ply with. These should be stream­lined. Eas­ing fi­nan­cial bur­den : Like ap­provals, there are mul­ti­ple taxes, fees and levies on the re­alty sec­tor, di­rect and in­di­rect. All these costs such as ex­ter­nal and in­ter­nal de­vel­op­ment charges, stamp duty on regis­tra­tion of prop­erty, ser­vice tax, etc are passed on to the buyer. There is a case for not only ra­tio­nal­is­ing these taxes and fees but also to re­duce the rates of dif­fer­ent taxes to make hous­ing more ac­ces­si­ble and af­ford­able to all.

“High ex­ter­nal de­vel­op­ment charges (EDC) stip­u­lated by the state gover nment, col­lected by the de­vel­oper from the buyer and then passed on to the gov­ern­ment needs to be re­duced,” says RP Mal­ho­tra, 68, a Panchkula-based real es­tate ex­pert and builder.

In ad­di­tion to the above taxes mainly im­posed on the de­vel­oper, and ul­ti­mately paid by the buyer; the buyer also has to pay mul­ti­ple charges and fees to the de­vel­oper, in­cluded in the cost of the house. These ad­di­tional or hid­den costs may com­prise 20% to 25% of the ba­sic price of the house. Some of these costs in­clude pref­er­en­tial lo­ca­tion charges (PLC), ex­ter­nal de­vel­op­ment charge (EDC), in­ter­nal de­vel­op­ment charge (IDC), club charges, IFMS (in­ter­est­free main­te­nance se­cu­rity) de­posit, power-backup charges, main­te­nance charges, ad­vance an­nual main­te­nance charges, le­gal ex­penses, wa­ter con­nec­tion charges, sewer con­nec­tion charges, elec­tri­cal con­nec­tion charges, stamp duty plus regis­tra­tion charges plus IDC cess, ser­vice tax on prop­erty, val­ueadded tax (VAT), and ser­vice tax on PLC.

An­other fi­nan­cial bur­den on the home buyer is the stamp duty to be paid on the regis­tra­tion of prop­er­ties. The rates are as high as 10% in some lo­ca­tions. This not only en­cour­age un­der­re­port­ing of the price but also adding to the cost for the home buyer. “There is a strong case for the gov­ern­ment to re­duce the stamp duty rates, par­tic­u­larly af­ter the end of ‘cash’ com­po­nent of the re­alty deals,” says Mal­ho­tra.

Clar­ity over the goods and ser­vices tax (GST) is needed. “While the GST struc­ture has been an­nounced, the real es­tate in­dus­try is wait­ing to see which tax rate is ap­plied to the con­struc­tion in­dus­try. A higher rate

of 18% could end up in­creas­ing the cost of homes, es­pe­cially in projects un­der con­struc­tion. Clar­i­fi­ca­tion will be needed on whether credit for in­put tax will be al­lowed by the gov­ern­ment if the com­po­si­tion scheme has been availed by devel­op­ers. Only af­ter these clar­i­fi­ca­tions have been is­sued in com­ing days will the real es­tate in­dus­try un­der­stand the im­pli­ca­tions of the GST regime. On the pos­i­tive side, there will be re­duc­tion in the tax man­age­ment ex­penses in­curred by devel­op­ers thanks to the sin­gle uni­fied tax. The com­pli­ance costs would also go down,” says Anuj Puri, chair­man and coun­try head - JLL In­dia. Stamp duty is out­side the GST purview.

Cheaper credit : The higher cost of credit for both the de­vel­oper and home buyer adds to the to­tal cost of a house, which is ul­ti­mately borne by the buyer. It also re­strains the ex­pan­sion of hous­ing ca­pac­ity and sup­ply. Af­ter de­mon­e­ti­za­tion, banks are flush with funds but a cut in home loan in­ter­est rates isn’t ex­pected in the short term. In the medium and long terms, the in­ter­est rates have to come down other­wise the low liq­uid­ity in the mar­ket would keep the buyer de­mand low and af­fect the ex­pan­sion of new sup­ply, say re­alty ex­perts.

Home prices are ex­pected to come down in the wake of de­mon­eti­sa­tion and ban on the be­nami trans­ac­tions. But the new GST regime and builder try­ing to ful­fil the con­di­tions of the RERA Act might add to the fi­nal cost borne by the home buyer. What will be the net de­cline in prices will only be known in the next few months. But if the gov­ern­ment fol­low­ing its re­cent ini­tia­tive also stream­lines and short­ens the ap­proval process, re­duces the over-all tax bur­den on the buyer, and makes home loan cheaper then it will boost not only the buyer de­mand but also fuel the growth in the sec­tor.

Re­alty is the sec­ond largest em­ployer af­ter the agri­cul­ture sec­tor in the coun­try, and is key to the coun­try’s eco­nomic growth.

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