Nandu Belani, the President of CREDAI (Confederation of Real Estate Developers’ Associations of India) West Bengal, in an interview with BE’s Varsha Singh, explains how the implementation of RERA and the recent demonetisation-induced digital drive will impact the real estate sector.
Q. Is the year 2017 going to benefit the real estate sector?
A. 2017 will be a good year for the industry due to a few crucial developments. The Union Budget gave a significant push to affordable housing and we expect to see a great surge in activity in this particular segment. Tax benefits and institutional funding will provide great incentives to developers to function in this segment and subsidies on home loans shall garner buyer interest. Infrastructure status to affordable housing will reduce the cost of funding for builders, the benefit of which can be passed on to the purchasers.
The permission to complete affordable housing projects in five years instead of existing requirement of three years—to qualify for tax exemption under section 80IB of the Income tax Act—is a big relief for developers.
On the demand side, demand for affordable homes is likely to increase given the extra cash people will have in hand due to proposed deduction of the income tax rate to 5% for taxpayers earning less than `5 lakh. Added to this will be the interest subvention of 4% and 3% on loans of up to `9 lakh and `12 lakh. Capital gains tax period reduced to two years from three years means less capital gains tax for a person who intends to sell the house after two years of purchase instead of three years. This reduction in holding period will benefit investors in real estate.
The imminent execution of RERA, shall bring transparency in the industry and instil confidence in buyers. The industry has welcomed the introduction of RERA. The impact of RERA will further discipline the industry which will be good for its health in the long term.
Q. What impact did demonetisation have on the real estate sector? Is it still likely to affect the sector?
A. Demonetisation had little effect on the real estate sector and that effect was bound to be short-term. Most transactions in this sector are conducted in cheque and were unaffected by demonetisation. The primary market is largely influenced by home finance companies and deals tend to be facilitated in a transparent manner. This segment therefore saw a very limited impact in the larger cities, though some tier- 2 and tier-3 cities where cash components have been a factor would have seen a business crunch. The secondary or resale market will, however, certainly be impacted, given the fact that this segment does see the involvement of the cash component.
There will be minimum impact on office / industrial leasing and transactions businesses given that cash components do not play a significant role in such transactions. We welcome the initiative to move to digital transactions, as it shall bring greater transparency to the industry. This move is likely to encourage and benefit organised developers, and affect fly-by-night operators adversely.
Q. What according to you needs to be done to develop the sector both in terms of buyers and sellers?
A. One concern that sellers face is procedural delays, which leads to cost escalation. The three major delays that developers face are in environment clearance, urban land ceiling and land conversion. A single window clearance would prevent delays faced during obtaining approvals. The delays escalate financing costs for developers. By preventing delays in the approval process, developers would be able to pass on the benefit to buyers in terms of lower prices. At present project clearances take 9-36 months. A single window clearance would allow it to be compressed to 45-60 days.
Urban Land Ceiling Act (ULCA) is under the purview of the state and in the case of West Bengal, ULCA limits holding to 7.5 cottahs (500 sqm) which makes it difficult to develop larger projects and delays approvals whereby leading to escalation of costs for developers which in turn affects the price for the end user.
A reduction in stamp duty rates across the country would incentivise buyers to register their properties early and would enhance tax revenue for the state. For example, West Bengal has offered a 20% rebate on registration fee for buyers who register within a year of project completion and has proposed registration against a stamp duty of 2%, with another four years in which to pay the remainder 5% of stamp duty. Such moves are expected to encourage home buyers to complete the formalities early instead of waiting for years to delay payment of stamp duty and registration fee. It is our hope that GST will lower the tax burden, potentially resulting in lower construction costs, which will benefit end-users.
Finally, with the imminent implementation of the RERA in most states this year, a demonetisation-induced digital drive, and the adoption of GST, a great deal of transparency is likely to be injected into the realty sector, which will benefit buyers.