De­cline in num­ber of new re­alty project launches to con­tinue

Mar­ket con­di­tions cou­pled with the Rera and new tax regime are set to hit the num­ber of new project launches in the hous­ing sec­tor in short term

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Mu­niesh­wer A Sa­gar mu­niesh­wer.sa­gar@hin­dus­tan­times.com

The pri­mary mar­ket or the new project launches in the hous­ing sec­tor has steadily lost mo­men­tum in the last five years with the slow­down in the sec­tor.

More and more builders have ei­ther post­poned or shelved plans of launch­ing new projects.

Ac­cord­ing to a re­port by prop­erty con­sul­tant firm Knight Frank In­dia, the num­ber of new launches in In­dia’s top eight cities fell by 41% in the first half of 2017, the big­gest drop in the last seven years.

The num­bers of new launches are set to fur­ther de­cline with the Real Es­tate (Reg­u­la­tion and Devel­op­ment) Act 2016 and GST (goods and ser­vices tax) com­ing into force. While the Rera is spe­cific to the sec­tor, GST is the big­gest tax re­form since In­de­pen­dence.

“Both RERA and GST will be in­stru­men­tal in mak­ing the In­dian real es­tate sec­tor a more cred­i­ble and at­trac­tive mar­ket­place. How­ever, as is usu­ally the case with ground-break­ing new reg­u­la­tions, the mar­ket will need to take an ex­tended pause to catch its breath and fig­ure the new sce­nario out. These two re­forms have a direct cor­re­la­tion on the at­trac­tive­ness and af­ford­abil­ity of real es­tate, but also on the abil­ity of and fea­si­bil­ity for de­vel­op­ers to launch new projects over the short term,” says JLL In­dia chief ex­ec­u­tive of­fi­cer and coun­try head Ramesh Nair.

STRINGENTRERA CON­DI­TIONS

While R era is ex­pected to bring in much-needed trans­parency and ac­count­abil­ity in the hous­ing sec­tor, its sev­eral strin­gent pro­vi­sions like project reg­is­tra­tion and es­crow ac­counts to be main­tained by the builder are ex­pected to re­strict cre­ation of new hous­ing sup­ply in the com­ing months

Un­der the Rera, a builder can­not sell or mar­ket or ad­ver­tise any project with­out first reg­is­ter­ing with the state real es­tate reg­u­la­tory au­thor­ity.

The builder has to sub­mit with the au­thor­ity a num­ber of doc­u­ments re­gard­ing dif­fer­ent facets of the project like com­pany records, en­cum­brances on the project land, land ti­tles, buy­erseller agree­ments, orig­i­nal sanc­tions for the project, lay­out plans, pos­ses­sion sched­ule and to­tal car­pet area for the reg­is­tra­tion be­fore the project is con­sid­ered for reg­is­tra­tion.

If the project is not reg­is­tered with the au­thor­ity and is of­fered to buy­ers then the builder can be pe­nalised with fines or even im­pris­on­ment.

The builder has to de­posit 70% of the amounts re­alised for the real es­tate project from the al­lot­tees, from time to time, in a sep­a­rate ac­count to be main­tained in a sched­uled bank to cover con­struc­tion and land costs.

The builder can with­draw the amount from the sep­a­rate ac­count, to cover the cost of the project, in pro­por­tion to the per­cent­age of com­ple­tion of the project.

These amounts can be with­drawn only af­ter it is cer­ti­fied by an en­gi­neer, an ar­chi­tect and a char­tered ac­coun­tant in prac­tice that the with­drawal is in pro­por­tion to the per­cent­age of com­ple­tion of the project

The strin­gent R era con­di­tions are ex­pected to take a toll on the num­ber of builders in the mar­ket and also sup­ply cre­ation in the sec­tor.

“RERA will erad­i­cate at least 50% of the pre­vi­ous num­ber of de­vel­op­ers from the play­ing field, and the ones that re­main need to both time their launches in ac­cor­dance with up­take and en­sure that they are launched in within ac­cor­dance with RERA. As such, we will see a con­stric­tion of the con­struc­tion pipe­line over the next few months,” says Nair.

UN­DER-CON­STRUC­TION PROP­ER­TIES

The gov­ern­ment no­ti­fied the G ST on un­der-con­struc­tion real es­tate at 18% ap­pli­ca­ble on two-thirds of the value of the prop­erty. Af­ter the ad­just­ment to the land cost, ef­fec­tive tax is 12% of the sell­ing price of a prop­erty. The com­pleted and ready-to-move prop­er­ties are out­side the purview of the GST regime.

Ear­lier, the in­di­rect tax on un­der-con­struc­tion prop­er­ties hov­ered around 7% to 9%. The in­crease in the tax rate is ex­pected to be com­pen­sated by the in­put tax cred­its to be given to the builder and then passed onto the home buyer.

Real ex­perts say the in­crease in stip­u­lated in­di­rect tax on un­der-con­struc­tion prop­er­ties and ex­emp­tion to ready-to-move prop­er­ties from the GST can trans­late into buy­ers avoid­ing the pri­mary mar­ket.

In re­sponse to this, builders are ex­pected to cut down on their plans on launch­ing new projects. Sa­man­tak Das, chief econ­o­mist and na­tional di­rec­tor, Knight Frank In­dia, says, “It will take at least a quar­ter for builders to ad­just to the new G ST pro­ce­dures and sort out the com­plex­i­ties. Projects with higher land cost com­po­nent are ex­pected to be ef­fected more than the af­ford­able hous­ing. In the long-term though, the GST with in­put tax cred­its will en­cour­age launch of new projects as both the builder and buyer will ben­e­fit from it.”

MAR­KET DY­NAM­ICS

The cur­rent mar­ket con­di­tions are also con­tribut­ing to de­creas­ing num­ber of new launches. Builders strug­gling with the paucity of funds and low de­mand are fail­ing to meet the pos­ses­sion dead­line so folder projects. They have to reg­is­ter these in­com­plete projects with Rera, and if they fail to meet the de­clared pos­ses­sion dead­line they can be fined and im­pris­oned for it.

“The pri­or­ity of builders is to com­plete older in­com­plete projects rather than launch new projects. Builders are also strug­gling with large un­sold in­ven­tory and be­fore they can launch new projects they have to sell these prop­er­ties. The rate of new project launches will re­main sub­dued in the next six months till the mar­ket con­di­tions and Rera com­pli­ance im­proves,” says Das.

For home buy­ers, a weak­en­ing pri­mary mar­ket means lesser op­tions to ex­plore. In the cur­rent mar­ket con­di­tions, though, it can also mean cheaper homes. Vivek Sharma, a Panchkula-based builder, says, “Builders strug­gling with low sales are ready to ab­sorb any in­cre­ment in costs be­cause of R era and G ST com­pli­ance.

This can help a turn­around in the mar­ket and boost de­mand. In­di­ca­tions that de­mand is pick­ing up are al­ready in the mar­ket. This will be ben­e­fi­cial for buy­ers in all price seg­ments, par­tic­u­larly, the af­ford­able hous­ing seg­ments ”

UN­DER RERA, A BUILDER CAN­NOT SELL OR MAR­KET OR AD­VER­TISE ANY PROJECT WITH­OUT FIRST REG­IS­TER­ING WITH STATE REAL ES­TATE REG­U­LA­TORY AU­THOR­ITY

HT PHOTO

More and more builders have ei­ther post­poned or shelved plans of launch­ing new projects.

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