Reformation of Indian Real Estate
April 3rd, 2018
The government of India introduces various acts and laws to bring transparency in the property market
With a contribution of approximately 5-6 % in country’s GDP, the Real Estate is the globally recognized sector of India. It is the second largest employer in the country after agriculture. The real estate sector which can be sub-categorized into- housing, retail, hospitality, and commercial has direct, indirect or induced effect on other sectors of the economy. Majority of Indian real estate i.e. 80% comprises of residential spaces leaving 20% for the retail, hospitality, and commercial. With an estimated size of US 12 $ Dollars, the growth of the real estate sector has made India a land of investment opportunities and thus attracting the Foreign Direct Investment.
Real Estate sector in past years has witnessed major reforms to guide and streamline the sector. Due to constant and major clashes between the home buyer and the real estate developers, the Government of India ruled out some guideline under the Real Estate (Regulation and Development) Act, 2016. Besides RERA, Demonetization, Goods & Service Tax, introduced on July 1, 2017, Benami Transactions (Prohibition) Amendment Act, 2016 (Benami Property Act), REIT and Housing for all by 2022 scheme have marked a major thrust in the growth of the real estate sector. These acts are playing a significant role in bringing clarity, transparency, liability, and proficiency in the construction process.
Goods and Service Tax: GST is an indirect tax levied by the government of India on the sale of goods and services, which is divided into five tax slabs for the collection of tax- 0%, 5%, 12%, 18% and 28%. The Real Estate sector was brought under the purview of GST due to the burden of various indirect taxes like VAT, Service Tax, stamp duty and registration fees. The real estate sector invites GST of 12% in under-construction properties while it is not applicable on the ready to move in properties.
RERA: Over the years the Real Estate sector has assimilated a degree of discredit due to the opaqueness in the sector. Various complaints had been filed against the defaulter developer and thus to clear the apprehensions of the consumers and increase the transparency and clarity of the financial transactions and construction details, the model came into existence. To strengthen the prospective buyers from fraudulent developers the bill made it mandatory for the builder to register the project with the RERA prior to the commencement of the project. RERA issues the Commencement Certificate to the builder, as an approval for the construction of the project. It is the duty of the RERA to resolve the disputes cropping between the parties by suggesting a medium or by imposing a penalty or granting any sort of punishment to either.
- Benami Property Act: “This is just the beginning in our fight against corruption….In the coming days, this law will also become operational.” “The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the Government without payment of compensation.” Prime Minister Narendra Modi stated while referring to the amendments to an old version of the Benami Act. The act came into effect from November 1, 2016.
Housing for All: The Pradhan Mantri Awas Yojana (PMAY) introduced by Prime Minister Narendra Modi on June 1, 2015, stated that this is an initiative provided by the government of India with an aim to provide affordable housing to the urban poor. The mission of this initiative is to provide housing for all by 2022. Under the scheme, affordable houses will be built in selected cities and towns using eco-friendly construction process for the benefit of the urban poor population. Along with that, the beneficiaries are eligible for interest subsidy if they avail loan to purchase or construct a house.
REIT (Real Estate Investment Trusts) : REIT’s are intended to enable more investment and funding in Indian Real Estate by assisting more people to invest in Indian property market. Although the sector has been profitable for the investors it escorts many uncertainties. The introduction of REIT’s on September 2014 by Securities and Exchange Board of India (SEBI) provides a platform that allows all kinds of investors (including small budgeted) to make safe and lucrative investments o Indian Property market.
The introduction of various acts and laws in the real estate sector, the property market of India is going through an enormous reformation enabling home buyers to regain trust in the sector. From investing in the sector to home buying- the introduction of these major reforms has transformed the façade of the Indian real estate sector. This enables massive investments including FDI of USD 257 million in 2017, as noted by the Economic Survey.
After facing crisis for a few years in the real estate sector, Indian economy is finally experiencing a major thrust due to the introduction of various reforms by the government of India to clear the apprehensions and opaqueness prevailing in the real estate market, thus, inviting and attracting the investment opportunities for the people across the globe.