Indian Real Estate has seen various policy changes in the last one year. The policy and regulation modifications implemented by the Government of India are aimed at improving the investment environment and stimulating institutional investment in the country. The broader idea behind the regulatory changes is to bring transparency and accountability in the otherwise unstructured sector and to eliminate the irritants which have been a part of the industry since the beginning of time. The following changes are a step towards a radical environmental transformation:
Demonetisation: 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 international standards of doing business, resulting increased fund flow from institutional investors, banks and higher unit sales. Also we will see correction in home loan rates.
Real Estate (Regulation and Development) Act, 2016: The Real Estate (Regulation and Development) Act, 2016 came into force in April 2017 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 builders, investors and end users.
Smart Cities: The Smart Cities mission of the government is a bold new initiative to promote cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment and application of ‘Smart’ Solutions. The focus is on Tier II and Tier III cities to have a country wide development and initiate healthy and smart living in the smaller cities. Comprehensive development in this way will improve quality of life, create employment and enhance incomes for all, especially the poor and the disadvantaged, leading to inclusive cities.
Amendment to the Benami Transactions Act: The Benami Transactions (Prohibition) Amendment Act, 2016 lays 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 first-time homebuyers: To stimulate housing demand from first- time home buyers, the Union Budget 2016-17 also proposed deduction of additional interest of INR 50,000 per annum for first-time home buyers for loans of up to INR 35 lakh sanctioned during the next financial year for houses with a value not exceeding INR 50 lakh. This move should positively influence home sales in non-metros in the long term where residential product prices are not as high as those in metros.
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.
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.