Spring cleaning the Indian economy…

The year 2016 was quite an eventful one with the passing of many bills by the Modi government that had a direct or indirect effect on the real estate sector. For starters, demonetisation was introduced last month, which stumped black money hoarders, impacting the residential property buyers. With a lot of property buying happening by way of cash transactions, demand for residential houses took a hit, especially in areas where such transactions were rampant.

While it is too early to gauge the impact of the above policy, real estate experts are expecting prices in the far-flung areas around Indian metros to ease. Tier 2 and tier 3 cities, especially those where the residential property demand is driven by business communities, such as Jaipur, Indore and Surat, are expected to see a slowdown in sales. Land in the areas where plotted developments and row houses abound (as against residential apartments) are expected to see pressure on pricing.

Benami boxing

The Benami Transactions (Prohibition) Amendment Bill 2015 was cleared by both the Houses – which is again a positive. It is expected to bring unaccounted money into the system as well as lead to seizure of benami property. If an initiating officer believes that a person is a ‘benamidar’, he may issue a notice to him and hold the property for 90 days from the date of issue of the notice (subject to permission from the Approving Authority). The penalty in benami cases could be rigorous imprisonment of 1-7 years and a fine that could extend upto 25 per cent of the market value of the benami property.

This initiative is positive for residential property buyers as it will usher in much-needed transparency in property-related transactions and reduce title risks. Land related- transactions, especially, could get smoother, with better clarity emerging over titles, going forward.

RERA effect

The passing of the Real Estate (Regulation and Development) (RERA) Act, 2016, is a big relief to property buyers. It will bring in transparency as well as standardisation of processes and procedures in the sector. Maharashtra has already jumped on the bandwagon by coming out with a RERA draft. The good news for property buyers in the State is that within 90 days from the commencement of the Act, the developer must make all the project-related disclosures. While it has a provision of 70 per cent escrow limit for money collected from buyers of under-construction properties, it allows the developer to include the land cost. In a city like Mumbai, where land cost is a larger component — as much as 90 per cent of overall project cost — it could be counter-productive for buyers.

Good model

Moreover, with the passing of the Model Building Bye-Laws 2016 there are detailed design and planning guidelines to protect buildings against fire, earthquakes, noise, structural failures and other hazards. It also provides for a barrier-free environment to the differently-abled and elderly people which includes provision of wheel chair with ramps as well as access to all areas, hand rails, easy signage for the hearing-impaired as well as special toilets. While it is good news for buyers, state governments, urban local bodies and urban development authorities need to incorporate such bye-laws into their existing regulations.

GST googly

The impending GST (Goods and Services Tax) Bill brought in an element of uncertainty in regard to the actual tax rates that will applicable. While the good news is that a single indirect tax which encompasses all goods and services under the value-added structure would eliminate the cascading effect of taxes, there is uncertainty as to the actual rates that would be applicable. Only a concrete rate structure would indicate whether GST could benefit the manufacturers or buyers.

Lastly, the affordability of property to some extent was improved with the fall in the overall interest rates in the economy. Interest rate for a 15-20 year loan is currently as low as about 9 per cent per annum from some public sector players. However, in some cities such as Mumbai, prices continued to remain high which deterred buyers from jumping on the bandwagon.

Credits The Hindu Business Line

Leave a Reply

Your email address will not be published. Required fields are marked *