Top 10 policy initiatives that have impacted the real estate sector
Demonetisation and Benami Transactions Act have been the major initiatives
The real estate sector was in the news all through the year, with the government announcing several major policy initiatives such as the passage of the Real Estate (Regulation and Development) Act 2016 and the amendment to the Benami Transactions Act. But the most talked about was the demonetisation of ₹ 500 and ₹ 1000 currency notes used mostly for real estate transactions.
Some policy initiatives listed by international property consultants Colliers Research included the following 10 policy initiatives.
Real Estate ( Regulation and Development) Act, 2016: The Real Estate (Regulation and Development) Act, 2016 which came into force in March 2016 has laid down a regulatory framework which will change the way the real estate sector operates in India. It aims to enhance transparency, bring greater accountability in the realty sector and set disclosure norms to protect the interest of all stakeholders. Speedy execution of property disputes will also be ensured in due course .
Amendment to the Benami Transactions Act: The Benami Transactions ( Prohibition) Amendment Act, 2016 l ays down stringent rules and penalties associated with dealings related to ‘benami’ transactions. It establishes a regulatory mechanism to deal with disputes arising from such transactions and levying penalties to increase the institution-investor participation and regulating the sector to make India an attractive investment destination.
100% deduction in profits for affordable housing construction: To promote affordable housing, the finance minister proposed 100% deduction in profits to an undertaking from a housing project for flats of up to 30 sq metre in four metro cities and 60 sq metre in other cities. These projects have to be approved during June 2016 to March 2019. Another condition was that the project should be completed within three years of grant of approval.
Interest subsidy for firsttime homebuyers: To stimulate housing demand from first- time home buyers, the Union Budget 2016-17 also proposed deduction of additional interest of ₹ 50,000 per annum for first-time home buyers for loans of up to ₹ 35 lakh sanctioned during the next financial year for houses with a value not exceeding ₹ 50 lakh. This move should positively influence home sales in nonmetros in the long term where residential product prices are not as high as those in metros.
Change i n arbitration nor ms f or constr uction companies: To help the ailing construction sector, the government has cleared reforms including speedier resolution of disputes and the release of 75% of amounts that are stuck in arbitration. The government will now release 75% of amounts against margin-free guarantee in cases where arbitral awards have been given but have been contested. The amount released will be used by contractors to complete projects or pay off debts. This is aimed at improving the cash flow position of large developers who have significant exposure in infrastructure and government contracts and eventually help in speedy execution of large infrastructure projects. Coming at a time when most developers are struggling with liquidity issues, this is a boon from an overall perspective..
Service tax exemption on construction of affordable housing: Exemption of service tax on construction of affordable houses of up to 60 square metre under any scheme of the Central or state government including public private participation or PPP schemes will propel construction in affordable segment across India and encourage greater collaboration between the public and private sector as well as participation in affordable home construction.
DDT exemption for SPVs to REITs: The Union Budget 2016-17 exempted any distribution made out of the income of the Special Purpose Vehicles ( SPVs) t o t he Real Estate Investment Trusts (REIT) and I nfrastructure I nvestment Trusts ( InvIT) from the levy of Dividend Distribution Tax. This paved the way for the REIT model to become financially viable for retail investors.
Implementation of Goods and Services Tax structure: Goods and Services Tax (GST) is a positive move towards simplification of Indian tax system. However, the real estate industry is still awaiting clarity on which items fall into “sin” and “common use” and whether they will attract 18%, or 12% possible tax rates. Additional clarification is also needed if the implementation of GST will subsume existing service tax and Value Added Tax (VAT), which are levied for under construction projects currently.
Currency demonetisation of 500 and 1,000 rupee notes: The recent demonetisation of ₹ 500 and ₹ 1,000 rupee notes by the prime minister is perceived as a significant reform. In the long run, this measure along with Real Estate (Regulation and Development) Act, 2016 (RERA) will align the real estate sector to the international standards of doing business, resulting in more fund flow from institutional investors, banks and higher unit sales.
Pe r ma n e n t Re s i d e n cy Status for foreign investors: The Union Cabinet approved the grant of Permanent Residency Status (PRS) to foreign investors, subject to various conditions and with a provision for renewal for another 10 years. As PRS allows the holders’ spouse/dependents to take up employment in India, as well as the purchase of one residential property for end-use, the end user pool, mainly for high-end and luxury segment products stands increased which can promote the asset class in a big way. India is a disaster-prone country with 85% of Indian land vulnerable to one or more natural hazards and that makes it critical to have a plan and gauge an organisations’ readiness to deal with such situations, says a report by CBRE South Asia Pvt Ltd.
The survey, titled Disaster Preparedness Amongst India Corporates, includes over 100 top corporates in the country and over 350 respondents.
The survey was conducted to increase awareness about disasters, to re-iterate the importance of proactive planning for disaster management and arrive at an industry wide approach for the same. MASSIVE LOSSES Commenting on the findings of t he s urvey, Anshuman Magazine, chairman – India and South East Asia, CBRE says, “India’s average annual economic loss due to disasters is estimated at $9.8 billion according to a UN global assessment report on disaster risk.”
This includes more than $7 billion loss on account of floods. India is a disaster prone country, with 85% of Indian land vulnerable to one or more natural hazards, making it is critical to have plan and gauge an organi- sations’ readiness to deal with such a situation,” he says.
“Integrated and comprehensive approach is necessary to improve the safety of buildings from disasters, thus we strongly advocate an increased private enterprises’ engagement with government agencies in disaster risk reduction activities,” he says.
“Unprecedented rate of urban growth, increasing dependence on complex technical systems, combined with climate change predictions, have increased the disaster uncertainty even more,” says Gurjot Bhatia, managing TOP FIVE THREATS The top five threats that have increased disaster risks with rapid urbanisation include uncontrolled use of land, violation of building codes, poor governance, poor quality of construction and overloaded services. Majority of those surveyed said that losses from a disaster occuer as a direct result of damage to the built environment and lack of planning. Almost 97% agree that periodic audits should made mandatory for all buildings with regard to codal provisions and compliances with a quarterly frequency.
As many as 70% were of the opinion that reviews to not acknowledge disaster and that only 21% attempted to include hazard mitigation measures in projects.
The intent of the survey is to gauge preparedness for handling a disaster, awareness on the subject, what needs to be done and who all need to be involved and who will need to be involved.