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Big reforms, bigger impact

Ashwin Sheth Dec 28 2017, 20:26 IST

The realty sector, both residential and commercial, has witnessed a slew of landmark government policies in the past year that has helped the industry be more organised. Key announcements in the realty sector in 2017 such as affordable housing, Real Estate Regulatory Authority Bill (RERA), Goods and Services Tax (GST), bi-monthly RBI policies have proven to be a game changer for the real estate sector.

Money matters

They have improved the overall market sentiment, reinforced the confidence of investors, infused transparency and brought in much-needed credibility. Furthermore, the festive season catalysed a surge in sales in the housing sector owing to the improved market sentiment.

The realty sector witnessed some ambiguity post demonetisation in November 2016. The decision to scrap old currency notes caused a minimal impact on sales. However, this helped in curbing many inconsistencies and unfair trade practices, and brought in professionalism in the sector. Reputed builders did not feel the pinch as they have been making use of bank channels for transactions.

Post demonetisation in 2016, the government took staunch measures to provide relief and boost the realty sector in 2017. The union budget 2017-18 saw the government granting the infrastructure status to the affordable housing sector, which would provide incentives to developers to construct budget homes and make housing for all a reality. Thereby, developers stand to get access to institutional funding and land in prime locations reserved for such projects.

In line to boost the realty sector, the government reduced the holding period for computing long-term capital gains from transfer of immovable property from three to two years. The government also paved the way for ease of doing business by announcing that construction permits would be issued within 60 days. Furthermore, the government implemented RERA and GST, two landmark reforms that would change the face of the industry.

For some transparency

Post the implementation of RERA, there has been increased transparency and accountability in the sector, which has reinforced investor confidence. With RERA coming into the picture, the fly-by-night operators are facing an existential crisis. However, reputed and credible developers are not impacted by the act, as this has been a standard operating procedure for them.

With respect to taxation, GST has brought in uniform taxation, based on the concept of 'One Nation, One Tax'. GST has created a level playing field for all the industry players, allowing only the ethical ones to prevail. The bill is expected to result in higher transparency in the sector, which is currently facing a perception issue. However, there are talks to bring all real estate transactions under GST.

Currently, 12% GST is charged for the construction of a complex, building, civil structure or intended for sale to a buyer, either wholly or partly. On the other hand, land and other immovable property are exempted from GST. The rate of stamp duty varies from state to state and is in the range of 3-10%. The real estate industry is requesting the government through various bodies to reduce the GST slab on housing to 5% as opposed to the current 12%, which will eventually benefit the end consumer and boost the growth of the sector, making it more transparent and organised.

The festive season of 2017 which commenced from Ganesh Chaturthi saw a slight surge in the sales in the housing sector. Customers, especially first-time homebuyers who were sitting on the fence in anticipation of some changes, were looking to invest in homes. The market sentiment during the festive season was positive as it is considered as an auspicious time to buy a home. To add to it, the developers had various offers and discounts during this period.

The RBI has taken staunch measures to boost the realty sector complementing the central government's initiatives. The current repo rate of 6% has been the lowest so far, which has helped to significantly boost the sector and ease the financial burden of millions of homebuyers.

The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform, which will allow investors to invest in the Indian real estate sector. This would help increase the cash flow in the sector and create opportunities worth billions over the years. The first REITs listing is expected in early 2018 which will provide a significant boost to the commercial realty sector, and position the Indian realty market as an attractive investment option.

What 2018 will look like?

With the government encouraging foreign and domestic investors by implementing various progressive policy reforms, it has contributed to changing the modus operandi of the sector. Its initiative to make 'Housing for all by 2022' a reality will promote the growth of the housing sector, create employment opportunities, and address the housing needs of millions.

Furthermore, the state governments are also taking measures to develop the infrastructure such as new metro lines, road connectivity, flyovers, coastal roads, sea links, etc, to support the government initiatives to promote the sector. These reforms have had a cumulative effect on the sector and positioned it as an attractive investment hub globally. With the Indian economy set to grow and the country playing an important role in the world, the future of the realty industry looks bullish. These reforms and other developments have resulted in higher transparency, efficiency and accountability in the sector, while protecting the interests of the buyers and developers alike.

(The author is chairman & managing director, Sheth Group)

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