2016: A review of Real Estate Policy Frameworks in India..!

2016: A review of Real Estate Policy Frameworks in India..!
By Mr. Anuj Puri,  JLL India
 

1.           Demonetization ..!

After Prime Minster Mr. Narendra Modi announced demonetization on 2016, November  9, old currency notes of 500 and 1000 denominations were withdrawn as legal tender.

After this move, transactions in the real estate have virtually dried up, particularly in the land and capital raising business. Residential sales’ enquiries have witnessed adrop, and prices in secondary markets are softening.

2.           Real Estate (Regulation & Development) Bill..!

 RERA was passed by the Parliament in March 2016. Rules and procedures have been framed, and the Union Territories as well as two states, i.e. UP and Gujarat, have already implemented RERA. Chandigarh has set up an interim regulator and various other states are in different stages of setting up their respective regulatory bodies.

All states will have to meet the deadline of implementation i.e. one year from the time the bill was passed. This major pro-consumer law will bring in transparency to the sector like never before.

3. Real Estate Investment Trusts (REITs)..!

 An important development in the real estate sector, REITs will help smaller investors to invest in Grade-A commercial real estate across India. India’s first REIT listing could happen within the next one year.

Budget  2016-17 exempted dividend distribution tax (DDT) on special purpose vehicles (SPVs). Rules for REITs were relaxed, and the investment cap in under-construction projects was raised from 10% to 20%. SPVs are now allowed to have holdings in other SPV structures, and the limit on number of sponsors has also been removed.

Anuj Puri, JLL India

Currently, around 229 million sft of office space can be seen as REIT-compliant. If even 50% of this were to get listed, we are looking at a total REITs listing worth USD 18.5 bn.

3.           Benami Transactions Act..!

The Benami Transactions Act will curb black money flow into real estate and also render holding of property under fictitious names a punishable offense.

Budget 2015-16 further announced imposition of a heavy penalty on property transactions carried out in cash. This amendment promises to make incidences of unaccounted monies getting parked into real estate next to impossible.

4.           Goods & Services Tax..!

 The GST is the single-largest taxation reform in modern India, and promises to eliminate geographical barriers for businesses by mitigating differences in indirect taxes applicable across various states.

The initial deadline for its implementation (April 1, 2017) will most likely be missed - though, with most states onboard, it should be implemented soon thereafter. Clarity on tax credit for real estate transactions and allowing input credit could bring about a reduction in home prices. Clarity on the applicable GST rate for the real estate sector is expected in the next year.

Apart from these important policies, some more deserve mention: 

* Time taken for developers to get central level approvals has come down as the process was moved online

*  The National Land Record modernization programme is also underway to digitize land records, and is now slated to be completed by 2021

*  States will also follow the Model Tenancy Act, which was rationalized by the Centre this year. This will help tenants and landlords living in dilapidated and very old developments. 

  * In June 2016, the Centre approved the Model Shops and Establishment Bill, which permits all shops, malls, cinema halls, restaurants, banks and similar retail outlets to remain open 24x7. Heartily welcomed by all retailers, this move has provided them a much-needed reason to cheer.

* India is still an underserved economy in terms of real estate requirements. There is a wedge between demand and supply of housing, largely as a result of information asymmetry. However, as the real estate market achieves higher transparency, this demand/ supply mismatch can offer immense opportunities for developers and investors alike.

 * Indian real estate is on its way to become a well-regulated, consolidated and moderately efficient industry by the year 2020.

About the author

 Mr. Anuj Puri, Chairman & Country Head, JLL India

 

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