In India if common men are asked about their biggest aspirations, many would reply ‘a home of my own’! Probably this kind of a consumer sentiment is unique to India. A normal first home buyer aspires to secure a shelter for lifetime for himself and his family, whereas many consider real estate investments as they have almost always yielded high-returns.
Are the days changing?
Demonetisation, Real Estate Regulatory Authority (RERA) and the introduction of Goods and Services Tax (GST) have surely changed a lot of things for Indian real estate industry. At present the sentiment among the developers and the customers are hopeful and everyone is waiting to see the long term changes in the industry.
Current Government has taken a number of measures to encourage transparency and bring down discrepancies in the realty sector but whether the collective effect of these policy reforms will bring down property prices and help the common men or not, is still arguable.
The Real Estate sector contributes around 9% of India's GDP and is the second largest employer, after agriculture. Real estate plays an important role in country’s economy and lately the Government is clearly paying more attention to this sector than other industries by introducing supporting measures like infrastructure status to affordable housing, policy reforms, tax exemptions in various cases etc.
Other game-changing initiatives that have been announced were ‘Housing for all by 2022’, ‘Pradhan Mantri Awas Yojana (PMAY)’ etc. The changes have been welcomed by the majority as they are aimed to bring the much-needed constitutionality and clarity to Indian real estate sector.
But we must wait longer to realize the actual reforms that take place and whether or not they meet the expectations of the home-buyers and the developers alike.
The realty sector has been witnessing a sluggish growth for last few years and is dire need of a turnaround. With the introduction of RERA and GST, the real estate sector in India is likely to move towards a promising future provided the execution happens in due manner. While a section of the industry believes that real estate prices will go up post-RERA, finance experts think that in the long run GST will be able to bring down the property cost.
The buyers’ interests will be protected and better transparency will be ensured after the RERA, which will bring accountability to real estate transactions and the developers will be forced to ensure timely development of projects. GST is the biggest tax reform ever that India is witnessing and it aims to get rid of the difference in indirect taxes applicable across various states. GST will further streamline the real estate business in India and also bring ease of doing business in the realty sector.
Prior to GST, in Maharashtra, 4.5 per cent service tax plus 1 per cent VAT were in effect. Under GST, the tax on under-construction projects will be 12 per cent flat. Apparently that’s an increase of 6.5 per cent for the buyers but with the introduction of Input Tax Credit benefits to be availed by the developers, final property price would probably come down.
Government has included a very important clause in the GST bill to ensure that all the manufacturers, developers and service providers pass on the cost benefit to the final customer. With this clause in the bill, it will be compulsory to pass on the benefit of reduced tax owing to input tax credit to the buyers.
Another important benefit of GST would be elimination of cascading tax structure and introduction of a uniform tax structure. GST may take some time to affect the property price in favor of customers but the implementation of the bill will surely be a sentiment booster for the entire fraternity.
One area still remains a concern for the industry and has not been provided with any relief to is Stamp Duty, which remains very high for land and apartment sales. Hopefully government will look into it in future.
For the first time in independent India an industry has gone through so many changes in a short span of 8 months. However there are many factors aside RERA and GST which will decide the actual positive changes possible in long run such as single window clearance for all the projects, removal of Red-Tapism, eliminating of lengthy processes of getting sanctions/approvals etc. one can expect momentous improvement in buyer sentiment and the way world looks at Indian real estate industry, moving forward.
Authored: 9amstories editorial