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

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

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.

AFFORDABLEHOUSING

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.

DE­MON­ETI­SA­TION EF­FECTS

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.

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