Prime Minister Narendra Modi is not called a risk taker for nothing. Apart from the game changing demonetisation and GST, one sector that has undergone a radical transformation is real estate
Prime Minister Narendra Modi is not called a risk taker for nothing. Apart from the game changing demonetisation and a slew of other moves which have unearthed more than Rs 1.25 lakh crore of black money, and still counting, if there is one sector that has undergone a radical transformation, it is real estate.
A recent Confederation of Real Estate Developers’ Associations of India (Credai)-Cbre report highlighted how the Real Estate (Regulation and Development) Act (RERA), the Goods and Services Tax (GST) and theReal Estate Investment Trusts (REITs), will enhance transparency; improve investor sentiment; increase the share of organised sector; regulate unorganised sector; encourage competition and consumer confidence; improve ease of doing business; enhance operating fabric; make affordable housing the growth catalyst in the real estate segment; and last but not the least, give impetus to the Pradhan Mantri Awas Yojana which envisages housing for all by 2022 against the backdrop of a shortage of 20 million affordable homes in urban India alone.
The current BJP-led NDA Government’s commitment is reflected in the smart cities mission which is worth one lakh crore rupees; the Rs 77,000-crore Atal Mission for Rejuvenation; and the urban transformation scheme that provides basic ammenities like water supply, sewerage, transport to households and various other measures like the creation of the Rs 4,000 crore National Investment and Infrastructure Fund.
The real estate market, hitherto marked by opacity and unscrupulous players, is set for transformation for the better, given the regulatory overhaul by the Modi Government. It is estimated that seven billion dollar, or maybe more, from offshore equity investors, large corporates and High Net Worth Individuals, are slated to enter the real estate space this year after $5.7 billion by way of Foreign Direct Investment and $32 billion via private equity funding in 2016.
Speaking of affordable housing, enabling policy initiatives like 100 per cent service tax exemption to affordable housing and according it ‘infrastructure status’, increase in abatement period from three to five years, hiked exemption limit on interest outgo on home loans, Credit Linked Subsidy Scheme under Pradhan Mantri Awaas Yojana, linking home loans to Marginal Cost of Lending Rate to ensure effective monetary transmission of interest rate cuts by banks, Benami Property Act, higher budgetary allocation for rural housing from Rs 15,000 crore to Rs 23,000 crore in 2017-18, allocation of Rs 29,000 crore under the Pradhan Mantri Gramin Awaas Yojna, will go a long way in ensuring the initial target of 10 million homes by 2019. Such initiatives will ensure a ‘living’ reality for a large swathe of India’s 1.3 billion population.
Coming to GST in the real estate sector, what is commendable is that the GST has brought all indirect taxes (service tax, excise duty and value added tax), which applies to procurement of goods and services during the construction stage, under one unified tax. This has lead to a scenario where what remains is only direct taxes like capital gains tax, wealth tax and, of course, stamp duty.
Considering that almost 70 per cent of the real estate market caters to the middle and high income segments, the GST should help shift focus, particularly for smaller developers, towards the Economically Weaker Sections and Lower Income Groups of the society.
Also, the biggest hurdle for developers has been removed by allowing deduction of land value equal to one-third of the total amount charged by developers, thereby ensuring that the developer passes on the input tax benefit to the buyers.