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The real estate sector is amongst the most rapidly developing sectors all over the world. Though the Indian real estate has been very sluggish since the last few years but the future holds some good opportunities for the prospective homebuyers. This downturn in the real estate growth have brought down the prices of the residential segment making the housing units cheap and inexpensive and also the loan rates have reduced considerably due to the notable cuts on the repo rates, announced by Reserve Bank of India.
This slow rate of growth has been a matter of concern for everyone as a result of which the government, developers and banks all are working hard to improve the situation. They have already taken several initiatives to increase the hustle bustle in the property market which is otherwise becoming dull and losing its sheen.
Analyzing the movements taking place in the real estate market in the year 2015-2016, it seems that the various measures taken have worked well and are showing positive results - even after being very cautious regarding the property investments, the end users have led to 97% of total housing demand made in FY 2016.
For those who always wanted to buy a house but had been delaying the decision in hope of better rate cuts or in search of a trusted developer, it’s the right time now to take a step forward in fulfilling their desires as the Central government has announced the implementation of Real Estate Regulatory Authority (RERA) Bill, according to which many steps shall be taken to address the builder issues and fix responsibility and accountability for the same.
The first and foremost and the most important issue that needs to be addressed by the proposed real estate authority bill are of the cash diversion by the developers. As per this bill, it is mandatory for the developers to reserve a share of 70% of the payments made by the customer in an escrow account in order to use the amount efficiently and effectively only for the completion of the project. So in order to protect themselves, the developers are putting their projects in place before the RERA act is completely implemented and an authority takes the charge of the same. The numbers of new launches across the prime locations of the country reduced considerably, during the last year, as most of the builders were focusing on completing their existing projects in order to reduce the stock of unsold inventories before it comes under the scope of RERA. Since most of them are in short of funds, the developers are trying to clear their huge piled up stocks by offering attractive offers and discounts to the buyers or by reducing the prices. So it is a double beneficial situation for the potential home buyers to bargain and grab the best deals possible. Because with the implementation of RERA, the cost of builders will go high and there will be little scope left for any kind of negotiations or other discounts.
The RERA also acknowledges the importance of property advisors in this field as by doing so, it authorizes a key agent in all types of property transactions which will enhance the home buying experience and make it easy and hassle free for the safety and convenience of both the parties involved.
Not just this, even the Union Budget has come up with a horde of measures that serve as an impetus to boost the affordable housing sector. The civic authorities are working towards putting all the systems in place so that the entire process of purchasing a property becomes much simpler and comfortable. Once the things are in place and the new law is completely in force, only the authentic and genuine players will remain in the scene. And in case, the inflation increases, the rate of interest will also increase, making the home loans more expensive.
Further in order to fuel the property market with positive energy and enthusiasm and to assess the growth of Indian real estate sector, the central government has launched its initiative for modern cities known as Smart Cities Mission, according to which there is a proposal of redevelopment of 100 cities. This mission is a golden opportunity and the wise investors would definitely not miss the same, making the most of it.
Another new initiative taken by the government is the proposed introduction of the Goods and Service Tax (GST) in 2017, which is a measure to reduce the multiplicity of taxes involved namely the service tax, VAT, stamp duty etc. With the implementation of GST, there shall be left only two taxes with regards to property matters namely the stamp duty and GST. This will reduce the infinite disputes taking place related to the confusion regarding legal provisions of property transactions.
The impact of GST on the various segments of real estate is discussed below:
Sale of Immovable or constructed property
The term “goods’ under the GST model refers to any kind of movable property and since the GST is proposed to be imposed on supply of goods and services, the sale of immovable property or the constructed property should remain unaffected and the stamp duty will continue to be charged as earlier. GST would be applicable on the acquisition of good and services related, but will not creditable and hence the builders can add the same in the property prices.
The situation more or less remains the same as on the purchase side initially there were other multiple non creditable taxes like excise, service tax, VAT but now there is just one GST that needs to be collected. The difference in rate between the current taxes and GST either up or down would accordingly affect the same.
Sale of under-construction property:
As per the proposed GST law, the construction of property is to be considered as a works contract and which is further considered as a service used. Thus the sale of under-construction property is expected to be covered under the range of GST. However the discount to be given of on the value of land still needs clarity.
Construction of property for lease purposes
The lease of property is expected to be treated as a service under the ambit of GST. In the present day scenario, service tax is imposed on the lease of an immovable property for commercial purposes whereas it is not in case of residential purposes. It is anticipated that the same rule would follow under the GST Model Law also as there is no service tax for the residential purposes; GST would become an additional cost.
Uncertainty regarding Transfer Development Rights (‘TDR’) taxation
In certain cases, the landowners pass on the development rights in the land to the builder in place of some flats being given to the landowner by the builder. Thus in this situation there is a confusion regarding the taxation on such TDR whether the same is accountable to service tax and at what price.
Overall we can say that GST in case of real estate has both benefits and losses depending upon the kind of transaction. It is important to bring immediate clarity regarding the qualification of the same for developers and contractors.
All things said and done, one should not forget that this fall in sales and prices has been encompassed in the last few months and the prices now are on an upward graph. All these factors combined make this the right time to make a real estate investment.
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