“Realty Sector Needs a Single-Window Clearance System”

The Top 5 Policy Initiatives in India and Their Impact on the Indian Realty Sector

Over the last two years, the real estate sector in India has seen several breakthroughs, especially on the policy front. Be it the surgical strike against black money or the revolutionary RERA or a unified tax regime- these policy changes were implemented to make the Indian real estate sector transparent and more professional.

In this post, we take a look back at some of the significant policies announced over the last two years that are expected to bode well for the Indian real estate sector in 2018.

Real Estate (Regulation and Development) Act, 2016

The year 2017 will be remembered as a golden year in the history of the Indian real estate sector with the Real Estate (Regulation and Development) Act coming into force. RERA was an Act that sought to protect the interests of homebuyers while enhancing the credibility of the construction industry by promoting transparency, accountability, and efficiency in the execution of projects.

Moreover, it put in place an effective regulatory mechanism for the orderly growth of the real estate sector, which is the second largest employer in the country.

The impact: The Act has brought in transparency and accountability in the sector with developers adhering to the norms. Also, with stringent rules in place, homebuyers today are much more confident about investing their money.

(Read More: One Year of RERA)

Amendment to the Benami Transactions Act

In November 2016, the original Benami Transactions Act was amended to make it more stringent and relevant for the current market scenario. It laid down rules and penalties for dealings related to ‘benami’ transactions.

The impact: The amendments of the Benami Transactions (Prohibition) Act further strengthened India’s position as an investment destination by encouraging greater transparency. In the long run, it should instil professionalism, ease of operations, and accountability.

Moreover, several land parcels will come into the kitty of the central government, ultimately aiding them to use it in fast-tracking their ‘Housing for All by 2022’ vision. Additionally, most land dealings will begin to have clear titles.

100% deduction in profits for affordable housing construction

The central government announced a 100% deduction on profits for housing projects building homes up to 300 sq. ft .in the four metro cities and 600 sq. Ft. in other cities. Project approved between June 2016 to March 2019 are eligible for this deduction. Also, it should be completed within three years of the grant of approval.

The impact: The slew of incentives and tax benefits will encourage several leading developers to venture into the affordable segment. Further, the supply of affordable projects will increase substantially over the next two years. Additionally, with private players entering this segment, quality might improve.

Goods and Services Tax

The much-awaited Goods and Services Tax (GST) was finally rolled out by the Central Government on the midnight of July 1, 2017. This uniform tax subsumed several indirect taxes paid by buyers, including excise duty, VAT and service tax, amounting to a tax outgo of nearly 11%, excluding stamp duty.

The effective tax on under-construction properties is 12%.

The impact: GST removed the complexities of multiple taxes for homebuyers. Further, it also ushered in a higher level of transparency in the real estate sector. In the previous tax regime, VAT was levied on material cost while service tax was levied on labour cost. Thus, the actual cost of the material and labour was manipulated by the builders. With a single tax, everything is transparent now.

(Read More: One Year of GST)

Demonetisation

The decision to discontinue high-value notes of Rs 500 and Rs 1000 on the night of November 8, 2016, was also hailed as a significant step in curbing black money.

The impact: The cash component in property transactions reduced drastically. It eventually ushered in more transparency that propelled investors’ confidence in the Indian real estate sector.

(Read More: One Year of Demonetisation)

The upward trajectory of consumer sentiments is a strong indicator that the market has responded well to these reforms. Improving sales in H1 2018 indicate that the reforms have started to pay off. The second half of 2018 is also expected to do well with ample new supply and improved sales.

What do you think? Will there be more reforms this year? Let us know in the comments.

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