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Is Indian Real Estate Sector Going to Revive in 2020?

About Indian Real Estate 2020

Real Estate Sector in India

The real estate sector in India has been witnessing weak sales for the last few years, resulting in a sharp drop in its significant contribution to the country’s Gross Domestic Product (GDP). Overall, the year 2019 proved to be a mixed year for the nation’s realty sector as the commercial sector flourished but that was not the case with residential real estate. However, some positivity has been seen in the market as a result of various announcements made by the government last year. Government announcements like NHB raising liquidity for Housing Finance Companies, relaxation of External Commercial Borrowings (ECB) funds, and approval of a Rs 25,000-crore alternate fund have all been made at a positive pace.

Nation’s real estate sector saw a fall after banks limited lending activity post the NBFC crisis in 2018 and the situation worsened further in 2019 to a sharp demand crisis. Not just the real estate sector but a large number of other industries indirectly related to the sector have also suffered the heavy winds of low demand.

Real estate developers, consumers, and investors have been facing the burden of the fall in the housing segment for the last few years. From unsold inventories to incomplete construction to delayed projects, the segments had faced a lot of difficulties that have been pointing to negative sentiments.

In spite of the government’s measures to revive the weak realty market, there has been no positive result except limited growth of just 1% in the year 2019 but far from reaching its full potential.

According to the International Monetary Fund, India’s economy grew by about 4.8% in 2019, a sharp drop from 6.8% in 2018. Similarly, unemployment rose to 7.5% in the last 3 months of 2019.

There is an urgent need to approach the challenge of liquidity suffered by the sector, especially after the NBFC cash crisis. Liquidity will improve sentiment in the market with a regular supply of ready to move-in homes. If the challenge is not tackled on priority, it will block the confidence of developers as well as buyers which may seriously affect the realty sector as well as the economic growth of the country.

Few bold govt measures that could revive the real estate market in the year to come including tax rebate hike, personal tax relief, higher liquidity, better land reforms and fast infrastructure development for raising homebuyer sentiments.

The industry body has also suggested the government to reconcile the Insolvency and Bankruptcy Code (IBC), GST and individual taxes to help increase demand for unsold properties, which increased sharply in 2019.

The reviving real estate sector would also improve overall demand as the sector employs a large number of laborers belonging to lower-income groups. As a result, it could lead to a strong rise in rural demand.

However, it needs to be noted that the measures are not yet sufficient in size and will not be able to cater to real estate developers (small and big) and players in Tier 2 and 3 cities. Most importantly, the measures need to be backed by other factors mentioned below to bring in a proper resolution. Instant step in terms of implementation of several schemes and processes is expected to bring momentum into the sector in 2020.

Budget 2020-21 Fails to Address Major Concerns of Realty SectorFreal estate

It offers a few solutions to revive the nation’s weak economy. The government’s $428 billion budget for 2020-21 considered a series of modest initiatives, including planned investments in new roads and airports and personal income tax cuts, along with an increase in bank deposit insurance to encourage customers worried by high-profile bank failures.

But it offered no large incentive plan to produce more jobs or money in the pockets of India’s 1.3 billion residents, most of whom rarely get their food through farming or work in the informal economy. Nor did the budget offer any additional support for the country’s weak financial institutions.

Few Govt measures that may put real estate back on track in 2020 includes:

Industry Status

For a long time, the real estate market demands an industry status that can help it with finances at a lower cost, especially at times when the availability of funding is a major barrier for the industry.

Single-window clearance

The sector, which is struggling to deal with multiple government offices for project approval, wants a single-window clearance facility to initiate the project implementation faster.

Removal of Multiple Rates or Taxes

Multiple rates or taxes need to be removed into a single standard GST rate.

Incorporation of Stamp Duty under GST

The cancellation of stamp duty or its incorporation under GST.

Lowering Interest Rates

In 2019, the Reserve Bank of India (RBI) reduced the policy rates (Repo Rate) by 135 basis points. But the registered commercial banks didn’t follow the procedure. So the average marginal cost of lending rate (MCLR) of banks has decreased by only 64 bps. The lower interest rates will benefit to decide the existing liquidity crisis and boost housing demand.

Rebate in Income Tax

Rebate in individual income tax will be another help to the sector as it will decrease the financial burden of the buyers and improve their expendable income.

Housing Loan Interest Rates to be Reduced

Interest rates on housing loans also need to be reduced to encourage demand and sales. Restoration of income tax gains on a 2nd home can benefit homebuyers in a big way.

Notional Rental Income

We expect the government to release organizations involved in real estate business from the burden of tax on notional rental income or the period of 1 year should be extended to 5 years. This is pushing buyers away from the market and affecting the sector as well.

Restriction on Home Loan Interest Paid

The govt should also remove the restriction of an additional deduction of Rs 1.5 lakh paid on a home loan up to Rs 35 lakhs with total values not exceeding Rs 45 lakhs.

The government should implement land reforms and amend the acquisition process.

People’s Expectations:

It is expected that the real estate sector will hopefully observe a growth story in 2020. Covering 1,600 projects with 458,000 housing units under the center’s announcement will help in raising buyer confidence and is expected to generate significant employment. We expect the govt to give full support to the sector not just in terms of the announcement but also implementation. The year 2020 needs a device to protect developers from the existing liabilities and stuck projects. It also needs to incentivize stressed projects in various ways.

At the same time, the central government has projected that the economic growth would rebound to as much as 6.5% for the current fiscal year.

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Real Estate expectations from Union Budget 2020

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Union Budget 2020 Expectations

The Union Budget 2020 will be presented on 1st February by the Finance Minister, Nirmala Sitharaman. Given the policy reforms undertaken by the government over the past couple of years, the real estate industry is hopeful that the upcoming budget will provide the much-needed impetus. The year 2019 saw the government take numerous steps to help improve market sentiment and revive real estate demand. Reforms such as capital gain benefit, tax exemption on notional rent, incentivizing Affordable Housing, the revised rental income limit for TDS, and thrust on infrastructure growth were highlights of the Union Budget 2019.

This time around, the sector expects the Budget 2020 to lower the GST rates on under-construction projects, increase the NBFC credit liquidity, implement single-window clearances for project approvals, redefine the Affordable Housing price bracket, allocate additional funds for PMAY scheme, and fuel investment in infrastructure.

In this backdrop, Commonfloor conducted a real estate survey on builders across India to capture their expectations from the Budget 2020. More than 300 builders participated in this survey to express their views and expectations.

Top_Sol

The majority of the builders (31%) expect the Budget to lower the GST on under-construction projects. GST reduction clubbed with the revival of Input Tax Credit can provide relief to the builders and housing can be made available at lower prices. After the reduction in GST rates in 2019, the government had withdrawn Input Tax Credit. The next key expectation of real estate is to address the challenge of NBFC (Non-banking Financial Company) liquidity. Liquidity will ensure positive momentum with a steady supply of ready-to-move homes. Also, single-window clearances can aid in procuring quick approvals so that project delays can be avoided. In the past few years, Affordable Housing has been the major growth driver. Still, it needs some reforms as currently only those houses are awarded affordable status and subsequently reduced GST rate of 1% which has a carpet area less than 60 sq.m. and falls under the price cap of Rs 45 lakh (GST rate for under-construction house is 5%)

Demand

Around 50% of the builders surveyed feel that the increase in Home Loan tax exemption is the primary factor boosting real estate demand. A further extension to the existing 2-lakh tax rebate on home loan interest rates will push the fence-sitters to buy homes. It could result in a higher demand for housing, especially in the affordable and mid-segment categories. Interestingly, “Redefinition of Affordable Housing” and “Income Tax Removal on Notional Rent” got equal responses from the builder community. The abolition of income tax on notional rent from the second self-occupied house benefits those with two houses and encourages home buying.

Sentiment image

One-third of the builders surveyed feel that the GST rates are the most vital component hurting homebuyers’ sentiment. Apart from GST, project delays and high property prices are the other factors that affect consumer sentiments. Builders feel that the initial aid of Rs 25000 cr last-mile funding for stalled projects is insufficient for the realty sector and that it needs to be executed on a larger level on a priority basis. Moreover, home loan interest rates and high government taxes such as stamp duty and registration could be reduced to propel demand in the market.

Fuel

Foreign Direct Investment is a key driver of economic growth and a medium of non-debt finance for any country’s economic development. One-fourth of the builders surveyed responded that single-window clearance will streamline the approval process and can bring about a major boom in FDIs for the realty sector. The next two major factors that can drive FDI are ‘clarity on entry-exit norms’ and ‘stamp duty exemption on FDI transfer’. More FDI in real estate will provide the necessary thrust to the current slump in the market.

Builder Bytes

Ajith Alex George, Director of 42 Estates says, “The real estate category in India requires bold fiscal measures from the union budget. The sector is going through a liquidity crisis with stalled projects across India, an economic booster required for the industry as a whole. Ease of Funding both on the supply and demand side along with quicker processing can again make this one of the key growth sectors. Approvals of projects have gotten better however there could be better clarity on some of the norms and changes in regulations, especially around taxation. Single-window clearance and query handling can make the process easier for the sector.

From the home buyers’ perspective, interest rates on home loans have to be reduced, we have been hearing further reduction on personal tax rates and stamp duties, this can strengthen the buying power of the home buyers which will have a compounding impact on the industry as both residential and commercial projects would get a better demand-side environment. The government is already doing its bit with the PMAY showing good traction, a further increase in subsidy rates for affordable housing can further help percolate this initiative. These steps might give the much-needed boost to the confidence of the developers and buyers alike.”

Mr. Amarjit Bakshi, CMD at Central Park says “Initiatives have already been taken to aid the real estate sector, such as tax concessions and availability of low-cost loans for developers and buyers. Reforms were put into place to promote rental housing as well as boost affordable housing, empowering the middle class and first-time home buyers.
We expect policy changes to boost consumption in the economy and improved liquidity for the industry by easing fund availability for the real estate sector, enabling the sector to come back on track, since it generates more than 6.5% of the GDP. It is expected that to boost investor interest, the limit of home loan interest will be increased. Announcing an industry status to the sector will bring manifold benefits.

Conclusion:

The implementation of the above-mentioned measures will help revive real estate growth to a great extent and give a thrust to home buying sentiments, which in turn will revive the economy. To generate cash flows for struggling builders, it is quite evident that the stress fund will be a big boost, but it would address only a small portion of the stalled projects. The rest could only be addressed by NBFCs and banks.

The real estate sector has long needed an industry status that can help to procure finances at a lower cost, especially now, when credit availability is a major headwind. The momentum of infrastructure development should continue from last year so that growth is decentralized and migration to urban centers remain under check. The real estate sector is optimistic that the upcoming budget will usher fresh stimulus in terms of bold fiscal measures to outperform its growth from last year.

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Maharashtra: Property is Expected to Get Expensive as Buyers to Pay Input Tax Credit

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Property Cost in Maharashtra is Expected to Get Costlier as Buyers Have to Pay Input Tax Credit

The Confederation of Real Estate Developers Association of India (CREDAI) in its annual general meeting which was held in Kolhapur on 8th June 2019 has decided to pass the responsibility of Input Tax Credit to buyers. This move by CREDAI is expected to increase property prices in Maharashtra by Rs.200 per sq ft.

Rajiv Parikh, President of CREDAI has informed that a discussion was made which influenced the industry body to take the decision. However, the effective date of the same is yet to be determined. The industry body will follow up with the State government regarding the same.

Shantilal Katariya, Vice-President, CREDAI, has added that builders are paying 13% tax on all construction materials to the government but they are not recovering the same from the buyers. Input Tax Credit is a part of the Goods and Services Tax (GST), which is applicable in case any goods or services are furnished to a taxable person. Builders were not passing this tax to the buyer.

He also added that CREDAI will follow up the government in this concern.

Earlier a resolution was passed in this regard, asking the government to possess equal provision for RERA as all states have different terms under RERA, which was giving difficulty for business.

As per vice-president of CREDAI, builders in Maharashtra are the most affected as the state alone has a share of almost 50% of real estate business due to rapid urbanization. If there will be an equal RERA in all states, it would ensure a smooth business environment.

In another initiative, CREDAI complimented the government’s decision to amend the Land Title Act. However, to avoid litigation in future, search report for land will be prepared by the state government and not a private lawyer. As a result, it will bring down the number of litigation.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. CommonFloor does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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Bangalore: Current Real Estate Scenario

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Bangalore: Current Real Estate Scenario

Ashish Sharma, MD,  LiveUp Solutions Pvt. Ltd. is very optimistic about the growth prospectus of Bangalore Real Estate in current Scenario. The Real Estate Sector has now recovered from the initial jolts due to the implementation of RERA, GST & Demonetization & is all set to witness the Positive outcome of the same.

ashish sharma

According to him “Indian Real Estate Market is settling after big jolts like GST, RERA, & Demonetization.
Last 6 months have been good and new FY is predicted to be good overall. Bangalore has not seen much launches in last fiscal so, one can expect a good number of new launches across the city.

East Bangalore and South Bangalore areas are most in demand while the highest number of launches are coming up in north Bangalore. North Bangalore has a large chunk of land parcels available and good infrastructure is already built. With the plan of a new phase of Metro connecting each part of the city with International Airport is a highlighting point for the new development in the north part of the city. Prices are stable and growing demand the market looks favorable in the near future.”

LiveUp Solutions Pvt. Ltd. is a fast growing Technology enabled Home buying Solutions Company. With a team of professional and experienced consultants, they are guiding their customers to find the right fit for their requirements. They are headquartered in Bangalore and have a strong presence in all major cities of India.

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GST & RERA: The two things that brought a transit in the Indian Economy

Seventh Heaven Homes

GST & RERA: The two things that brought a transit in the Indian economy

Director-Santosh Dash

 

Mr. Santosh Dash, Director & Tapas Ranjan Parida, Associate Director, 7th Heaven Homes LLP are very optimistic about the inception of GST & RERA in the Indian Economy. Here are their views on the impact of GST & RERA in the Indian Economy especially in Real Estate Sector.

Associate Director- Tapas Ranjan Parida

The Goods And Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption.
Real estate welcomed the thought process of the government on GST. The process has definitely aided homebuyers with 5%GST for New Launches/Luxury Homes and 1% for affordable segments.

Input tax credit which earlier was not being assigned to the buyers had created questions in the minds of the buyers but the implementation of new GST rates has brought about clarity which has resulted in a subtle increase in sales & rise of Real Estate in Bangalore.

Next comes the biggest revolution of the Reg Estate segment – RERA.

The Real Estate Regulatory Act was implied by the Indian Parliament to protect home buyers as well as help boost investments in the real estate industry.

Post the implementation of RERA there is an increase in trust factors for buyers while investing on a property. The impact of RERA has limited the number of new launches, guaranteed delivery date not abiding by which, a developer would have to pay a hefty penalty on being a defaulter. Also as only a RERA registered realtor is permitted to make a transaction, it assures a safety factor for the home buyer to rely on an agent.

With RERA implied on different states, a realtor gets an opportunity to sell products PAN India post his registration under RERA for the particular state.

Thus with rising in business, partners can work with the developers with different modules like an annual operating plan which can assure higher payout slabs and drive the increase in the number of sales.

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