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Published on 12/4/2017 11:17:45 AM
How policy changes in 2017 kept real estate market on its toes
Policy changes kept the real estate industry on its toes through the year 2017. Analysts are still grappling with these changes and the jury is still out whether the industry is out of the woods yet. While for developers, the way they had been doing business changed, home buyers to their relief witnessed laws like Real Estate (Regulation and Development) Act coming up to protect their rights.

Let us take a look back at the policies and the repercussions they had on the real estate sector this year –

1. Real Estate (Regulation and Development) Act, 2016

The Real Estate (Regulation and Development) Act, 2016 which came into force in March 2016 has established a regulatory framework, which is set to change the way the Indian property sector operates.

The Act works to enhance transparency, bring accountability in the realty sector. It also sets disclosure norms between the builder and buyer to protect their interests. Fast resolution of property disputes will also be ensured.

The process of registering under RERA kept the developers busy throughout the past few months. As the year is coming to a close, the number of projects and developers getting registered is growing. Till today, about 1100 projects and realtors are registered in Gujarat. About 223 housing projects are registered with Tamil Nadu RERA and with MahaRERA, more than 14000 projects are registered so far.

2. Benami Property

After the amendment of The Benami Transactions (Prohibition) Amendment Act in 2016, tax authorities began cracking down on benami assets recently. As per the reports, the income tax department has already seized 541 properties and frozen bank accounts holding funds of about Rs 1,800 crore and more action is expected soon.

After demonetisation, government’s next big move is going to be mandatory linking of Aadhaar with property transactions. Since Prime Minister Narendra Modi has indicated many times that the government is going to go tough on benami property, Aadhaar linkage can address the issue.

3. Bigger affordable houses – PMAY and CLSS

The last few years have been path-breaking for the policy of affordable housing in India as in 2016, it got the much-coveted infrastructure status. This year, the government has sanctioned 30.76 lakh houses since the launch of Pradhan Mantri Awas Yojana (Urban) to fulfil its ambitious scheme of Housing for All by 2022. Around one crore houses are to be built in rural India by 2019.

Moreover, the union cabinet has recently increased the carpet area of houses eligible for interest subsidy under the Credit Linked Subsidy Scheme (CLSS) for the Middle Income Group (MIG) under Pradhan Mantri Awas Yojana (Urban) under the government's affordable housing scheme, benefitting both builders and middle-class home buyers.

Under the MIG-I category, the carpet area has been increased from 90 sq meter to 120 sq meter and under the MIG-II segment, it has been raised to 150 sq meters from 110 sq meters.

Under the scheme, MIG I beneficiaries with annual income of between Rs 6 lakh and Rs 12 lakh get an interest subsidy of 4% for loan amounts on a 20-year loan component of Rs 9 lakh in MIG I. In MIG-II, those with annual income exceeding Rs 12 lakh and up to Rs 18 lakh, get an interest subsidy of 3% for loan of Rs 12 lakh. Housing loans above 9 lakh and 12 lakh will be at non-subsidized rates.

In the next few years, we may see the middle and lower segment home buyer's access to bigger and ready-to-move-in houses at lower costs.

4. GST on property

To bring down the cascading tax structure and reduce tax burdens on consumers, the Goods and Services Tax (GST) was introduced on July 1, 2017, in line with 'One Nation, One Tax' model. However, in residential real estate, the service tax was 4.5 per cent but after the introduction of GST, the tax was levied at 12 per cent with no extra or hidden taxes. The issues are still being debated and the volume of input credit is yet to be reasonably computed by developers.

For ready-to-move properties, the tax rate is zero. This has made the ready-to-move properties attractive compared to under-construction properties and is thus helping create fresh demand.

However, developers are not happy with the current rate of GST. The National Real Estate Development Council (Naredco) has recently urged the government to halve the GST rate for the real estate sector to 6 per cent to help boost demand for new homes.

5. Cash transaction up to Rs 2 lakh

The cash transactions of over Rs 2 lakh were banned. This has significantly reduced the amount of cash transactions that used to take place in real estate. Also paying real estate instalments in digital transfers has now become the norm. Accounts linked to Aadhar and Pan numbers are now ensuring that all property transactions can be tracked real time.