The real estate sector is an intrinsic part of the Indian economy and plays a crucial role in shaping it. It contributes nearly 8-9% to India’s GDP and is considered the second largest employment contributor preceded by agriculture. The sector is known to have links with over 200 sub-sectors like paints, bricks, cement, steel, furnishing, etc. According to various reports, the real estate sector is expected to attain a size of nearly USD 1 trillion, contributing to 13-15% of the GDP.
Similar to other industries, the legal framework and government policies have a direct impact on the overall performance of the real estate sector. Tactical policy changes done by the government leveraging demand generation and transparency tend to affect the sector positively. On the opposite, improper policy changes tend to undermine the growth of the sector.
Here is a post that highlights some of the latest real estate policy changes that impact the real estate industry majorly.
Real Estate Regulation and Development Act (RERA)
Established in 2016, the Real Estate Regulation and Development Act (RERA) was brought to tackle wide-ranging property-related issues such as fraud, property construction delay, and lack of transparency in the real estate sector. The bill was passed in the Parliament of India Act on Mar 10, 2016, by the Upper House (Rajya Sabha). The RERA Act became effective on May 1, 2016. Then, among 92 sections, only 52 were reported. All the other provisions became applicable from May 1, 2017.
More about RERA Impact
Security: According to the RERA Act, at least 70% of the buyers’ and investors’ deposited funds will be maintained in a separate account. These funds will then be sent to the builders for the ongoing construction and other purposes. Moreover, builders and developers are not entitled to get more than 10% of the property’s cost in the form of advance payment, before the signing of the sale agreement.
Fairness: RERA has asked developers and builders to offer properties based on carpet area rather than super built-up area. If the project is delayed, buyers are entitled to receive a full refund of their investment.
Transparency: Builders have been asked to provide the original documents for all the ongoing projects they work on. They are not allowed to make any kind of change to the layout, without taking the prior consent of the buyer.
Quality: Since quality is an inherent part of any construction project in the sector, the respective builders are obliged to nullify any problem related to the quality within 5 years of purchase. The underlying problem must be corrected within 30 days of the complaint.
Authorization: A regulator is not allowed to market, sell, construct, invest, or register a plot without registration with the regulator. Once the registration is done, all the advertisements-related expenses should allow a distinctive project-wise registration number, given by RERA.
Goods and Service Tax (GST)
The implementation of GST in July 2017 highlights a considerable shift in India’s taxation landscape. Before the implementation of GST, the real estate sector was known to have an intricate taxation system that included VAT, service tax, and stamp duty. The introduction of GST aims to simplify this structure by creating a single tax system. Its major impacts include:
As per the previous tax regime, a builder or developer was supposed to pay different charges including VAT, Customs duty, Excise duty, and Entry taxes for the raw materials. Moreover, they were entitled to pay Service taxes on various input services such as professional architect charges, approval fees, legal charges, labor charges etc. Since ITC was into action for CST, Customs duty, CST, Entry Tax etc., it was largely considered an onus on the buyer by impacting the overall pricing.
As of now, different types of services in the real estate industry are impacted by any change in the Goods and Service Tax.
Impact of Reverse Charge Mechanism (RCM)
In general, RCM is associated with the Service Tax law. In the case of GSP, the scope of RCM has gone up significantly. A few such instances are mentioned below: For example, if the acquisition of goods is done or relevant services are acquired from someone who is not a registered GST figure, a registered GST figure should make the stipulated GST payments to remain compliant.
If services are provided by a goods carrier, a legal firm of separate contributors, or any government or municipal agency, the developer will be responsible for paying GST on real estate. These situations may result in increased costs and have a negative influence on developers, specifically small-scale developers.
Infrastructure Plan
The government of India is working on a way to give the country’s infrastructure a big boost. From greenfield airports to smart cities, renewable energy plans, freight corridors, and industrial parts, the country has an extensive infrastructure grid of more than USD 1.4 trillion. Under its Bharatmala project, India is developing nearly 35-40 kms of highway every day. Similarly, under its Sagarmala project, the government is creating new ports, upgrading the current ones, and readying Coastal Economic Zones (CEZ). This, in turn, paves the way for the development of new commercial space, residential societies, cold storages, warehouses, etc.
Real estate consulting firm in India provides a comprehensive range of services, including news and updates, legal paperwork assistance, financing options, regulatory compliance support, and RERA services.
