RERA, REIT & GST: The buzz word to impact Indian Realty Market
The present market dynamics have made way for bringing about resurgence in the Indian real estate ...
The present market dynamics have made way for bringing about resurgence in the Indian real estate sector, bolstered by government-based initiatives and infiltration of global players into local market. Pragmatic retail and commercial spaces which supplement the actual market demands are now materializing into reality. Developers have shifted their focus from luxury spaces for the cash-rich IT/ITeS and HNI buyer segments to housing projects for the common man. A much needed transparency, brought to the early murky affairs of developers, will return faith of the buyers on the developmental and purchase front. Here are a few government-mandated reforms that are set to take the industry up by storm:
RERA – Ushering In A New Era Of Transparency
The passing of the long-anticipated Real Estate Regulatory Bill (RERA), which was being hotly debated and second-guessed for a prolonged period, is an indisputable victory for the sector as well as buyers. Its enactment as a law will independently revamp the way this sector works- from developers to end-users and investors, impacting lending institutions and property consultants and brokers, too. It is poised to be the most influential step the sector has taken towards transparency, reaching for the kind of harmonized processes, procedures and liability guidelines that the industry requires, to eschew an air of progress. From consumer’s , this creates a much-needed protection umbrella for buyers , increasing consumer confidence as well as building reliable developer brands for buyers to bank on.
GST- Adding uniformity into operations
The Goods and Services Tax (GST) is beyond doubt the most revolutionary tax-related reform to be seen in India in several decades, having a reflective effect on India's economic prospects and future scenario of the market. In spite of the tax structure has being announced, there is still a lot of speculation about which tax rate will be applicable to the real estate and construction industry. Currently, the tax rate has not been decided yet, making it premature to comment on the at this point. The expectations are for real estate to be in the 12% bracket. The abatement rules as applicable under the service tax regime and the input tax credit facility for developers will conclude if the effective tax incidence on real estate is lower or higher under GST, going a long way in determining whether GST is tax neutral or tax adverse for real estate. The importance of GST holds greater for Real Estate, as alongside RERA, a much required uniformity would be added, dispelling the earlier shady structure that the industry worked on.
REIT- A saviour for investors and buyers
The third reform in the triumvirate of changes, REIT is set to have a great impact on the developmental operations that were earlier disproportioned by developers. A real estate investment trust (REIT) is a revolutionary platform that allows investors to make protected real estate investments in allotted amounts. It works on similar principles as that of a mutual fund, assimilating funds from various investors into one basket, to finance development of the allotted property. Through REITs, the real estate asset is broken into several parts and converted into a paper investment, which is securitized. REITs help make investments in real estate more accessible, long-term and income oriented. They also help to build an efficient secondary market for developers to exit the projects. REITs usually invest in commercial properties and use the rental income to give dividends to unit holders. The speciality of REITS lies in choosing to invest in completed properties to get a stable income stream, bypassing under-construction properties. This adds stability and assurity- whatever property the buyer is paying for will be delivered to him at the promised time, restoring consumer faith on the industry.
In summation, the Real Estate sector is gaining maturity, and over the next decade we will note increasing transparency and dependability via the introduction of the above sector regulators, professionalism and international best practices in real estate, stabilizing the earlier shaky system.
By Mr. Hari Challa, MD, Aliens Group
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