Looking back: They ear that changed the realty sector
COURSE CORRECTION Structural reforms in the real estate sector this year brought about visible change in sector
CHANDIGARH: The real estate sector was set on are formed course this year with sweeping policy changes starting to makethe difference in the way the sector works. Transparency, accountability, and afford ability became the buzzword. The growth rate and market sentiment remained subdued as the sector adjusted to the policy interventions made last year and this year.
RERA RESHAPED REALTY SECTOR
The Real Estate (Regularisation and Development) Act was enacted last year but it was fully implemented this year. State governments also formulated state Rera rules under the Act, and formed the state real estate regulatory authorities.
The process of registration of projects started. Though the progress of the implementation of the Act differed in different states yet the change the Act started to bring in was all too visible. With the full implementation of the RERA Act, the builder has to comply with several new regulation and keep periodically updating the buyer and the regulatory body about such compliance.
The important change is the builder cannot market, sell or advertise his projects without first registering with the state real estate authorities. All incomplete realty projects now have to register with the state Rera. There were some concerns among home buyers regarding the dilution of the term“incomplete” projects as some state governments tried to exclude some such categories.
There are new regulation that can disrupt the way builders operate. Forinstance, earlier the builder collected funds from buyers and then diverted it for purposes other than the development of the project such as buying land.
Now ,70% of the amounts realised for the real estate project from the allottees, from time to time, is to be deposited in a sepa- rate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.
The builder can withdraw the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project. This could be withdrawn by him only after it is certified by an engineer, an architect and a chartered accountant that the withdrawal is in proportion to the percentage of completion of the project, stipulates the Act.
The builder has to get his accounts audited within six months after the end of every financial year by a chartered accountant, and show that amounts collected for a particular project have been used for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.
The state Rera started receiving complaints from the buyer, and in some states proceedings against builders were also initiated on the basis of buyer complaints.
R era not only started in bringing transparency and accountability in the sector, but also forced start consolidation with only serious and professional builders left on the ground.
NEW TAX REGIME
From July 1, the goods and services tax( G ST) came into force. The tax subsumed all other taxes like VAT (value added tax), central sales tax, excise duty, entry tax, service tax etc that impacted the housing sector directly and indirectly adding to the overall costs for the buyer. On the housing sector, VAT and service tax were directly imposed, while VAT rates varied across states, service tax was4.5%. In addition to these two taxes, the home buyer also pays stamp duty on the registration of the bought property.
The stamp duty rates vary from state to state, for instance, in Punjab, the stamp duty was recently reduced from 9% to 6%. The stamp duty is out of the GST regime, and the buyer would continue to pay it. Later in the year, there were suggestions that the government was considering bringing stamp duty also under the purview of the GST regime.
The government notified the GST on under-construction real estate at 18%, applicable on two- third soft he value of the property. Initially, the government had announced 12% GST rate. After the notification and the adjustment to the land cost, the net tax incidence remained at 12% of the selling price of a property. Completed properties, which come under the immovable property category, were kept out of the purview of the GST regime.
An important component of the GST was the introduction of input tax credit.
Under its provision, credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition.
The full impact of the new tax regime was still to be felt, but, for some buyers it was a gain as builders were not charging the GST from them.
The five-year slowdown and the policy shocks to the realty sector brought changes in the priority of stakeholders.
For governments both at the central and state levels, it became imperative to boost affordable housing to meet targets of ‘housing for all’.
From credit linked subsidy scheme (CLSS) to relaxation in buildings norms and conditions were introduced to help increase supply andre ali sing the potential demand in the segment.
At the end of the last year and in the beginning of this year, the real estate sector was thrown into a tailspin after the demonetisation policy was announced.
The sector heavily marked with flow of black money came to a standstill. The trend of price growth in the primary market slowed down considerably under its impact but the upward trend still continued.
Though the progress of the implementation of the Act differed in different states yet the change the Act started to bring in was all too visible.