12 December 2016

Top 10 policy initiatives that impacted the real estate industry in 2016

The real estate sector witnessed several radical policy level initiatives in 2016 that have the potential to change the way this industry operates in India. Here is the list of 10 most important policy level changes that marked the year;


Real Estate (Regulation and Development) Act, 2016

The much-awaited Real Estate (Regulation and Development) Act, 2016 (RERA) was enacted this year promising transparency and regulation in the real estate sector. The act has potential to change the way real estate sector operates in India. Currently, all the states are required to draft their RERA regulations.

 

 

Benami Transactions (Prohibition) Amendment Act, 2016

The Benami Transactions (Prohibition) Amendment Act, 2016 lays down stringent rules and penalties associated with dealings related to “benami” transactions. The act establishes a regulatory mechanism to deal with disputes arising with such transactions and levying penalties as needed to increase the institution investor participation and regulating the sector.

 

 

100% deduction in profits for Affordable housing construction 

Section 80IBA was introduced in the Income Tax Act that allows deduction of 100% profits from the affordable housing projects. This move shall instigate several developers to venture into affordable housing. However, the housing project must satisfy several conditions to claim this benefit; for example, the project completion should be within three years of the grant of approval.

 

 

Interest subsidy for first time home buyers 

The Union Budget 2016 introduced an additional deduction of 50,000 on interest for a loan up to INR 35 lakh, provided the house value does not exceed INR 50 lakh. In addition, the portion of one's EMI which goes towards principal repayment is also allowed to be claimed. As housing prices have gone up tremendously, such an initiative shall give some boost to the buyers.

 

 

Change in arbitration norms for construction Industry

The Cabinet Committee on Economic Affairs approved initiatives on arbitration norms to revive the construction industry. One of the key norms included the release of 75% of the amount against margin free guarantee for companies where PSUs or government departments have challenged the arbitral award. These norms shall help move the stalled construction projects.

 

 

Service tax exemption on construction of affordable housing

To promote the ‘Housing for All by 2022’ initiative, the Union Budget 2016 also included service tax exemption on construction of affordable houses that are up to 60 sq m under any central or state government along with PPP models. This will bring the overall cost of the project down and encourage developers to increase the construction activity.

 

 

DDT Exemption on income distribution from SPV to REITs

As per the Union Budget 2016, the distribution made out of the income of the special purpose vehicle (SPV) to the Real Estate Investment Trusts (REIT’s) who have specified shareholding will not be subject to Dividend Distribution Tax (DDT) on the dividend distributed after a specified date. This amendment shall give required fiscal support to make REIT’s a reality soon.

 

 

Implementation of Goods and Services Tax structure

Goods and Services Tax (GST) is a positive move towards simplification of Indian tax system. However, the real estate industry is still awaiting clarity on which items fall into “sin” and “common use” and whether they will attract 18%, or 12% possible tax rates. Additional clarification is also needed if the implementation of GST will subsume existing service tax and value added tax (VAT), which are levied for under construction projects currently.

 

 

Currency demonetisation of 500 and 1,000 rupee notes

The recent demonetisation of INR 500 and INR 1,000 rupee notes by Honourable Prime Minister is an indication of significant reform. In the long run, this measure along with Real Estate (Regulation and Development) Act, 2016 (RERA) will align the real estate sector to the international standards of doing business, resulting in more fund flow from institutional investors, banks, and higher unit sales.

 

 

Permanent Residency Status for foreign investors

The Union Cabinet approved grant of Permanent Residency Status (PRS) to foreign investors, subject to various conditions and with a provision for renewal for another 10 years. As PRS allows the holders’ spouse/dependents to take up employment in India as well as purchase one residential property for end-use, the end user pool, mainly for high-end and luxury segment products, stands increased which can promote the asset class in a big way.

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