Venkaiah Naidu calls for Roundtable on Private Sector’s apathy in PMAY
Real Estate

Venkaiah Naidu calls for Roundtable on Private Sector’s apathy in PMAY

The Minister of Housing and Urban Poverty Alleviation, Venkaiah Naidu, recently directed the Secretary of his Ministry to immediately convene a roundtable with all developers, banks and housing finance companies to deliberate in detail as to why no private sector participation has been enlisted under Pradhan Mantri Aavas Yojana (PMAY) and found out reasons for their reluctance in the scheme.

While addressing a conference on “Real Estate Sector Post Remonetisation & RERA” under aegis of PHD Chamber of Commerce and Industry, Naidu said that until February 20, 2017, the government had approved Rs 90,000 crore of investments in affordable housing with none in it representing the private sector.

The minister said, “On this occasion, Dr Nandita Chatterjee, Secretary (HUPA) to immediately convene a roundtable with all developers bodies, banks and housing finance companies and others concerned to deliberate in detail why there has been no private sector participation under PMAY (urban) so far, and the road ahead in the new eco-system of opportunities. This roundtable also needs to discuss ways and means, if need be, of improving various components of PMAY (urban) to encourage private sector participation.” He further added, “I would expect this roundtable to come out with appropriate business models so that the goal of ensuring Housing for All by 2022 is met.”

“Under PMAY (urban), the government has so far, approved construction of over 16 lakh affordable houses with an investment of about Rs 90,000 crore, for which central assistance of about Rs 25,000 crore also has been approved,” explained the Minister, expressing his surprise saying, “I am rather disappointed that not a single proposal has come from private builders so far, even though PMAY urban has been designed envisaging a big role for private sector.”

Concluding his remarks, he asked the industry, “Isn’t this a huge opportunity for developers at the ‘bottom and middle of the pyramid? In my view, it certainly is. Then what are you waiting for?”
Dr Nandita Chatterjee, Secretary (HUPA), in her remarks explained merits of the Real Estate (Regulation and Development) Act, 2016 saying that its stipulations are equally rewarding for developers and buyers of dwelling units and any compromise on them are subject to legal scrutiny.

In his welcome observations, Gopal Jiwarajka, President, PHD Chamber, hoped that with re-monetisation picking up its space, the real estate sector would witness corrections and supplies would match the demand.

Rajeev Talwar, Vice President of the Chamber, in his brief utterances requested the minister that private sector participation in affordable housing would become a reality with slight tweak in PMAY and congratulated the minister for his proactive approach towards the real estate.

Among others who also spoke on the occasion comprised Chairman, Housing & Urban Development Committee and Director, PHD Chamber Manish Agarwal and Dr Ranjeet Mehta.


Here is the report:

Real Estate Sector Post Remonetisation & Real Estate (Regulation & Development) Act, 2016
Background

On 8th November, 2016, Government of India de-notified specified bank notes of 500 and 100 rupees as legal tender, effectively immobilising about 86 per cent of the currency in circulation at the time. The monetary value of the immobilised currency was retained, subject to the specified bank notes being deposited within the bank account of the holder by 31 December 2016. However, restrictions were imposed as regards withdrawal of such monies in cash form till recently, when daily withdrawal limits were restored to about ten thousand rupees per day per account holder. The entire exercise, broadly termed as ‘demonetisation’ – has been a widely discussed topic insofar as its overall impact of the economy and the issues faced by the public at large.

The temporary shortage of cash adversely impacted several sectors that depended on cash, notably wholesale markets, informal sector and even parts of the real estate industry. As it is, the real estate industry involves both formal as well as informal sector stakeholders. The value chain in a real estate project is such that even the most formal sector projects have to necessarily depend on certain components of informal markets – be it sourcing of labour, materials etc., many of which transact entirely in cash.

A more insidious aspect of the real estate market is the prevalence of cash transactions in buying and selling of real estate, often unaccounted for at both the buyer and seller ends – and therefore escapes taxation liabilities or scrutiny. Although this practice is usually prevalent in the secondary markets, i.e. where real estate assets are re-sold, there have been instances of unscrupulous developers also demanding a certain portion of the sale consideration in (unaccounted) cash. By some estimates, the real estate sector itself is a significant repository of unaccounted money in India, usually by way of property purchased in ‘benaami’ form in cash. By other estimates, about thirty per cent of monies cha<img src="https://www.constructionworld.in/img/cw-feb27-levy.jpg">nging hands within the real estate transactions are unaccounted.

A key purpose of demonetisation was to eliminate such unaccounted cash changing hands during such transactions. Although whether such purpose has been served or not remains a matter of debate, a visible impact of demonetisation has been a major shift in both buyer demand as well as launch of new projects, leading to a fall in real estate prices. This in turn has sparked conjecture as to whether the exercise has caused a lasting, if not permanent damage to the sector and whether corrective measures will restore the sector to its former glory. Of course, from a buyer’s perspective, demonetisation is largely perceived to have caused a market ‘correction’ – rationalising prices to levels that are affordable to the purchaser. Whether or not this is a sustained situation remains to be seen.

As of this time, the situation as regards availability of cash has largely improved, nearing the position it was in prior to the 8th of November, 2016 – effectively ‘remonetising’ after having initially de-monetised. However, the Union Budget of 2017-18 has introduced certain new stipulations on handling of cash in transactions – the most notable one being the restriction of usage of cash in any transaction equal to or above the amount of three lakh rupees. This essentially implies that developers and/or sellers will not be able to ask for cash as a method for compensation for any real estate asset, if such cash amounts to over and above 3 lakh. Likewise, large cash deposits made into a bank can also attract scrutiny as to whether such amounts were obtained after due consideration of accounts and taxes. In effect, the exercise of demonetisation appears to be targeted towards eliminating the use of unaccounted cash within real estate transactions.

At the same time, the market is als<img src="https://www.constructionworld.in/img/cw-feb27-levy.jpg">o gearing up to meet the requirements of the Real Estate (Regulation & Development) Act, 2016, which comes into effect in totality on 01 May 2017 (only a part of the law was notified on 30 April 2016). This is a concerted effort at the National level to bring some sense of order and accountability to developers who have been known to renege on delivery of real estate products or deliver sub-standard products, largely by ensuring a series of compliances to be enforced and monitored by a specific regulatory authority appointed at the level of the State Government. At the time of writing this paper, about six States have either notified or are in the process of notifying appurtenant rules and regulations to the law.

The purpose of this paper is to examine the possible consequences of the exercise of demonetisation and the subsequent remonetisation on the real estate sector and its readiness to comply with the Real Estate (Regulation & Development) Act, 2016 – which itself has certain issues that may require addressing – more so after the demonetisation and remonetisation exercise.

Demonetisation and what it has done to the real estate industry
It would be worthwhile to see why unaccounted cash has played such an important role within the real estate sector. A key reason for this is a general tendency to avoid taxes – both by sellers as well as purchasers. Real estate has been a time honoured place to ‘park’ monies – accounted or otherwise. Unaccounted monies have been widely used to purchase ‘benaami’ property, broadly understood as property where the purchaser is a different individual than the one who has paid the actual consideration. Unaccounted monies have also been used to settle transfers that may otherwise seem like a gift from a donor to a recipient, but have a consideration paid in unaccounted money by the recipient to the donor. Since a transaction carried out in unaccounted money also poses a windfall gain to the seller, in most cases – they have been willingly complicit in being party to the same.

Ironically, while the purpose of using of unaccounted cash in a real estate transaction has been to avoid taxes and reduce the effective cost(s) of transaction, they have actually, in effect, been instrumental in driving up pricing within the real estate sector. This has been so because of a steady supply of real estate assets that may not find actual physical use in the near future, but provide suitable avenues for ‘parking’ of unaccounted monies. In essence, the value of such real estate assets is not determined by their potential for physical use, but for their potential to act as a vehicle to convert unaccounted money to hard assets. Of course, this principle is also applied by people who invest into real estate assets with accounted money, but with the purpose of speculation only, i.e. without the intent of ever actually using the asset physically.

In essence, the combined effect of using real estate assets as a repository to ‘park’ unaccounted monies as well as investments for speculative purposes have significantly altered the basis for valuation of these assets, making them far more expensive than what it should have been if its valuation was just to be performed keeping in view its usability. This distortion is most evident in terms of the difference in the rental values and the equated monthly instalments payable if the property is purchased – the latter often being tens of times higher than the former.

The step of demonetisation, i.e. immobilising specified bank notes has essentially caused the demand to temporarily, if not permanently, slow down – in the purchaser segments which have traditionally used real estate to ‘park’ unaccounted monies. In terms of the supply stock, this has affected sales within the secondary markets, i.e. where properties are under resale from an original allottee to a prospective purchaser, as well as assets developed at a small scale, viz. petty contractors working as developers.

Primary markets, i.e. where real estate assets are sold by developers to purchasers, and usually entirely in accounted monies - have been affected too, although differently. The removal of almost 86 per cent of the currency in circulation has caused demand cycles to shift. In essence, a purchaser who was planning to buy a house in the current year is now likely to defer making such a purchase by at least a year. Although not entirely irrational, the sudden paucity of cash in an economy that has largely been dependent upon cash for most out of pocket transactions typically tends to slow down spending – as was seen in this case, and the effects spill over into large purchases which actually do not involve hard currency in the first place! In turn, the house that a developer was expecting to sell this year would now be sold in the subsequent year – adding to the holding costs of the asset for the developer and in turn, a potentially lesser margin. In most cases, developers would find it easier and less damaging to simply reduce the price to avoid facing long term losses, and complete the sale of such a house this year itself, essentially causing prices to lower.

However, the above situation would be applicable if the developer has a ready inventory to sell. As has been seen in recent times, most developers have overleveraged their available financial resources – leading to massive slowdowns in construction and time overruns of several years before the asset is actually ready to transfer to the purchaser. Typically, working capital for real estate assets is provided for by what are called CLPs or construction linked payments – payments to be made by the purchaser at certain stages of completion of construction, which in turn maintain a working capital balance and stable cash flow for the developer. However, the last few years have seen a certain degree of slowdown – largely due to a large number of developers entering the same space with a multitude of projects, essentially creating an oversupply of sorts. To distinguish themselves, many developers made commitments of ‘no further payments till possession’ after an initial payment. As a result, they require alternative arrangements for working capital – and this is usually drawn from other projects that are being funded through CLPs. With demonetisation and the consequent ‘demand shift’, such alternative sources have also tended to ‘dry up’ – leading to suspension of work on several projects.

Cash transactions also hold sway in terms of several informal sectors involved in development of real estate, notably construction itself. Most developers, even the most established and organised ones – employ a number of contractors who can compensate labour workforce as well as sources of material supply only in hard currency. With the availability of hard currency impeded by demonetisation, even developers with adequate monies in banks find it difficult to maintain cash repayments to such contactors – and in turn have little option but to suspend work.
In effect, most of the activities that define a healthy sector – have been affected by the demonetisation exercise insofar as the real estate sector is concerned:
  • Slowdown in production, including stoppage of launch of new schemes
  • Shifting of demand, reduced purchaser interest in new products
  • Prices being lowered to clear ready inventory

Now, as the shortage of cash reduces and new measures have been instituted to prevent the usage of cash in larger transactions, it remains to be seen as to how the sector would behave within the new circumstances.

Remonetising again: do real estate prices come down or go up?
As and how the availability of hard currency cash improves, small transactions that were dependent upon cash transactions should improve – such as payments to suppliers of material and labour. This should effectively help the sector overcome the slowdown that had crept in due to the inability to make payments.

Going up……
However, this may not be able to address the larger issue of usage of cash in other forms of transactions within the real estate production process – such as procurement of land. Demonetisation has not per se, improved accessibility to the banking sector, and has also not altered the perception towards tax avoidance. Prior to demonetisation, deals between developers and land owners often used to be entirely cash based. Such landowner would in many cases be an agriculturist or farmer, immune to the levy of taxes as per existing law(s). However, when such land is alienated by way of sale to a developer for development for a real estate project, proceeds from such a sale would accrue to the landowner. This is taxable to a significant extent – being construed both as capital gains, as well as income. This is usually not perceived positively by an individual who has hitherto legitimately stayed under the taxation radar – and therefore the insistence on completing the sale or transfer in cash. If these costs of tax, i.e. capital gains as well as income tax is front loaded on to the cost at which the developer buys land from the farmer, the input cost of the land is usually considerably higher for the developer. Therefore, from the perspective of the developer – a cash transaction for the land actually lowers costs for him as well. It may be kept in mind that the developer’s costs also include stamp duty and conversion charges payable to convert the use from agricultural to non-agricultural.

A workaround to the above that is commonly employed is to make the landowner a shareholder in the project, which effectively eliminates the stamp duty payable in terms of transfer (since there is no real ‘transfer’ happening in the first place), and then settle his or her dues in cash, often informally. The issue with this arrangement is that the transfer of land to the end purchaser(s) is often left out, leading to a situation where even after the completion of the project, the land is shown as belonging to the landowner in the record of rights, while in reality the same belongs in part to every person who has purchased property within the real estate project.

If cash transfers are now made illegal for these kind of land based transactions, there is a very real possibility that landowners will load the tax costs from such sales on to the price at which they transfer land to the developer, and in turn the developer loads this cost back to the purchaser, increasing prices of the real estate product, but with no substantial gain in margins for the developer. If the demand for purchase of such assets continues as it was prior to demonetisation – as in using such assets largely as a means of long term capital gains, enhanced prices could still be sustained. However, there have been changes in the shape of demand as well, which has certain mitigatory effects on the pricing of real estate assets

Going down……
Emergent public policy in land use and development has advocated increases in floor area ratio, which determines the amount of built-up space which a developer can construct on a given parcel of land. For Governments, granting a higher floor area ratio is a no-cost incentive, allowing a developer to ‘build more’ on the same parcel of land. Developers, on their end have traditionally used this added capability to build a less number of larger houses as opposed to a greater number of smaller houses, usually so because they are more comfortable selling one larger house at a premium and a significantly high margin as compared to three several smaller houses with a smaller margin and possibly no premium. This, in turn implies that the developer had been catering largely to a niche clientele that sees value in purchasing a larger house – often in a far flung place. However, since this clientele is a niche segment, there are only a certain number of units that can be sold at a premium. This fact is now gradually dawning upon developers – and the focus is now to provide value for money homes that can attract more number of buyers with a lesser budget.

However, as previously discussed, these stocks are often produced in areas which do not cater to basic standards of liveability, viz. limited connectivity to places of work, and lack basic economic and social infrastructure, and consequently there is little value in terms of usability of such an asset. However, the asset is still worth investing into for speculative long term capital gains. There is an increased awareness of the fact that the pricing of rea estate assets is greatly distorted on account of such speculation – largely because there are no real recurring costs involved in ‘holding’ the asset without using it. By some estimates, for instance – over 60 per cent of housing stocks produced in the last five years within the Central National Capital Region is reported to be unoccupied. The city of Delhi itself poses a unique dichotomy – presence of a large number of unoccupied housing stocks, with a slightly lesser number of shelterless households – co-existing in the same place and time (Census, 2011).

If these vacant stocks were to be subjected to a significant holding tax or penalty, it will become unattractive for speculators to invest into – and in turn reduce demand for paying high prices. At such juncture, even if taxes paid by a seller of land is front loaded on to the final price at which the real estate asset is transferred to the purchaser, the developer may not mind cutting profit margins to ensure that the price still stays affordable.

The anomaly in demand shape is further exacerbated by the fact that 95 per cent of the urban housing shortage in India exists in the income segments, where a typical household earns less than Rupees Six Lakh per annum. That essentially also implies that there is only a limited shortage within the segments that formal housing actually caters to, essentially implying that there is something of an oversupply already happening, as illustrated earlier.

In effect, demonetisation and the subsequent remonetisation have the potential to increase input costs in production of real estate, but coupled with other factors – particularly the change in the shape of demand because of oversupply and possible regulation to discourage idle holding of real estate stocks, could prevent increase in pricing of such assets. In effect, it would discourage developers from investing into development of real estate assets for middle to high income group.

Reforms to the rescue?
Mitigatory reforms to reduce in-production costs – particularly by way of statutory levied - have been undertaken at the level of Government of India on at least two occasions. The first was undertaken during the implementation of the Jawaharlal Nehru National Urban Renewal Mission (2005 – 2012) to reduce the incidence of stamp duty on sale and purchase of fixed assets. While States did follow the practice of reduction of stamp duty for a while, they have compensated by raising circle or consideration rates proportionately – which would essentially keep revenue estimates intact. The second measure was taken up in course of the recently launched Pradhan Mantri Awas Yojna (2015 till date). This reform advocates that States may eliminate the cumbersome administrative process as well conversion charges for changes in land use for areas that are already classified as urbanisable or what is meant to be developed as per a statutory master plan or development plan. This reform is yet to catch on, while many States have again raised stamp duty rates back to what it was prior to 2005. This is largely because States are reluctant to waive off established sources of revenue in the hope that a decreased cost of transaction will lead to an increased volume of transactions.

As a result of the reforms and their subsequent ‘rollback’, a number of areas have emerged where ‘circle rates’ (rates deemed as benchmarks for the sale and purchase of real estate and on which stamp duty is computed) are higher than actual considerations paid between buyers and sellers. In effect, while the Government’s effort to reduce the incidence of hard currency in real estate transactions in laudable, the factors that have led to its proliferation have not been addressed. Under such circumstances, there can only be increase in the costs of doing business in real estate – something that will have to be borne by the end user or purchaser.

It may be noted that the temporary shortage of cash had ‘shifted’ the demand for purchase of real estate assets – not eliminated the same. As hard currency availability improves for people to address small cash purchases, the belief that one’s money is actually safe shall most likely be re-established, leading to normalisation of demand. As formal sector real estate transactions have been traditionally done in forms other than cash, this method will stay unaffected. However, the targeted avoidance of cash in transactions will also imply that small time developers – who have dealt with largely cash payments – will also either have to change the manner in which they operate or possibly wind up operations altogether.

Re-sale or seconds markets are also likely to react by trying to front load tax liabilities of the seller on to the sale price of the asset, unless such a sale is being done under distress. Potentially, this could drive up the demand prices. However, for such prices to sustain, there has to be a good number of people willing to pay such prices – and in accounted monies. Where such purchasers are hard to come by, the price of re-sale markets will also stagnate, if not fall.

The other anomaly that has will affect how real estate markets operate is the Real Estate (Regulation & Development) Act, 2016 that proposes to regulate the manner in which developer(s) conduct themselves in terms of production and disposal of a real estate project.

Real Estate (Regulation & Development) Act, 2016
The Real Estate (Regulation and Development) Act, 2016 came into existence after almost eight years of deliberations, largely fuelled by concerns over unscrupulous practices of developers such as delaying projects, demanding unscheduled or unaccounted for payments without actually delivering the product, misrepresentations and so on.  The Act makes it mandatory for promoters to register all projects with the State Real Estate Regulatory Authority, along with extensive information about them, the project implementation schedule, layout plan, land status, government approvals, sub-contractors, etc., which will be made available to consumers. All commercial and residential projects with a plot area of more than 500 sq. meters or eight apartments inclusive of all phases will have to be registered with Authority. Projects which have not received a completion certificate and are ongoing will also be required to be registered with the Authority within a period of three months of the commencement of the Act.

Today consumers have access to some of the information regarding the real estate project they wish to invest into. However, this information is usually available only for listed companies in the realty sector. Homebuyers do not have access to similar kind of information in case of unlisted companies. Making it mandatory to provide this comprehensive information available in respect of upcoming as well as ongoing projects to all will help homebuyers take an informed decision, irrespective of whether they buy from a listed company or from an unlisted company. It will also ensure that projects get completed on time and consumers get what they have been promised. But there are other enabling factors that will go a long way in projects being completed on time.

Timely completion and delivery
Project delays are one of the major issues currently plaguing the real estate sector. In the residential property sector, a delay of three to four years is the accepted norm; in certain cases, projects get delayed by more than seven to eight years. Overleveraging by developers is a primary reason for such delays – they typically divert funds from one project to another, which results in a shortage of funds to complete the ongoing project. The Act mandates that developers will now have to deposit 70% of the collections from homebuyers in a dedicated account to be used only for that particular project. It has been clarified that if the land cost has already been incurred by the Promoter, he can withdraw the amount to that extent.

No land based surprises
Another factor that will help in the timely completion of projects is that land will be free from encumbrances. It has been observed that after the initiation of construction, claims are made in respect to the land. This often results in litigation and deters the homebuyer from approaching the promoter for the purchase of a flat. Concerns are also raised in respect of monetary claims made in respect of disputes over the land on which the project is constructed. For this purpose, the Act provides for insurance of the land title which will ensure that claims made on the land can be satisfied by the insurance companies. The developer will not be burdened to make payments in respect thereof. So far, insurance companies have not launched such schemes but it is prevalent in some European countries. The same shall ensure marketability of the apartment to be purchased by the homebuyer.

These provisions, coupled with the mandate that developers need to furnish all information regarding the project, will go a long way in ensuring that projects get completed on time. There is another compelling reason for developers to complete the project on time—imposition of similar penal interest for developers and homebuyers.

Challenges galore
However, a quick reading of the law poses several questions that are now being attempted to be answered by State Governments, as they develop rules appurtenant to the law. As of the time of this paper, the States of Gujarat and Uttar Pradesh have notified rules, as has the Government of India for all Union Territories. However, at first glance, these rules (although customised for specific territories) do leave some questions to be answered.

Too many laws?
A key issue is the reconciliation of land laws and apartment ownership acts pre-existing within the State with the new law, and extension of its applicability. As for the latter, the law is applicable in what it defines as ‘urban areas’, a term that encompasses all municipal areas and areas within the control of an analogous local authority, or part of a planning area. However, several States do not have planning areas defined – and several Census towns (areas which are urban as per Census, but not under the municipal law of the State) are still governed by Panchayats. Although building and/or development control rules may exist for such areas as laid down by the town and country planning law or municipal law, these would not ordinarily fall within the description of ‘urban areas’ as defined under the Act.



A situation such as Madhya Pradesh could also arise in Odisha, West Bengal and all such States where planning areas exist only when defined by a competent authority and not by default. This could be addressed by States by altering the definition of a ‘planning area’ – but this would also obligate the State to plan for such areas under law.
In terms of being able to relate with existing laws of the State(s), the two laws that seem to conflict with this law are: (1) land revenue code/ land reforms act, and (2) Apartment ownership act – both of which partially overlap with the idea of the definition of real estate and treatment of common property. The law requires that ‘common areas’ – a definition that technically includes land on which the real estate project has been developed, to be conveyed to the association of apartment owners, a provision that is partially also reflected in the apartment ownership acts as well. However, as per the revenue code, the concept of land existing as a physical embodiment of ‘undivided, unspecified interest’ is often not clear, resulting in a situation where the developer or promoter retains residual interest in the property even after all apartments or units have been sold. Likewise, many apartment ownership acts reflect a development control stipulation that requires any unit with a carpet area of over a particular denomination (say, 100 sq. meters) to be mandatorily provided with a parking space for one equivalent car space (ECS); a fact reinforced by the Hon’ble Supreme Court in 2010 while interpreting the Maharashtra Ownership of Flats Act, 1963. The instant law, on the other hand makes an implicit statement that a garage may, actually be extricable and saleable from the remainder of the apartment.

The conflict with Consumer Protection Act, 1986
That the law is already in conflict with Consumer Protection Act, 1986 is evident as per section 71 thereof, by which a litigant implicitly has choice of pursuing litigation under one of the two laws – the instant law or the Consumer Protection Act, 1986.
However, to be fair to the intent of the law, the Consumer Protection Act, 1986 typically activates after a consumer (in this case, a purchaser) is aggrieved on account of non-delivery of a real estate asset, or worse, is delivered a substandard or disputed asset. The function of the Real Estate Regulatory Authority in this instant law is to constantly monitor the progress of the project in course of its development – raising concerns appropriately and acting upon them – rather than waiting for the time when a party is already aggrieved.

Applicability of the law to a ‘real estate project’
The other issue regarding the applicability of the law is regarding the definition of a real estate project – the stipulations of the law indicate that this would comprise any such project where there are eight or more separate transferable units, or where the total transferable area is equal to or exceeds 500 square meters. This potentially raises the question of ‘borderline’ cases – where the potential built up area (as per FSI permitted) exceeds the requisite area. Within the National Capital Territory of Delhi, a common practice that prevails is that of ‘builder floors’ – where a single plot owner would enter into an arrangement with a ‘builder’ to develop and sell each floor to a separate owner, usually with the lower floor being reserved for parking, sump and other services. This is where this provisions works differently, if the plot size is below 125 sq. meters, with an FSI of 4, and where the plot equals or exceeds 125 sq. meters with the same FSI – since the latter case would attract provisions of the law, and the former would not.

Public and private sector developers – potentially discriminatory approach?

The third issue is that of the definition of a promoter – the law has rightly and accurately not distinguished between public and private parties engaged in development of real estate – residential or otherwise. However, whereas the impact and the requirement of compliance by private sector developers is adequately clear, there is a need to clearly define where the law has primacy over conflicting procedures and/or practices set forth in regulations of authorities (viz. development authorities and housing boards) that may be contradictory to provisions in the law. Development authorities, for instance are governed by asset disposal rules – which govern the passage of a real estate product to a purchaser or allottee. An ideal course of action would have been to reconcile the rules to the provisions of the new law – something that has thus far not been observed as yet. Several municipal bodies are engaged at this time in providing houses under the Pradhan Mantri Awas Yojna – the definition of a promoter being applicable as much as to them as any developer; the provisions of the law would apply to them in such a case.
A cooperative (group housing or house building), for instance – which is described as a promoter as per the law – would ordinarily not have to advertise sale of houses – it would actually advertise memberships instead, which would be like a surrogate advertisements for a housing product – even without having land in possession in the first place. Now, even though the cooperative is a promoter in terms of the law, it also represents the collective body of purchasers or end users – where decisions are usually taken on account of a majority vote. Now, if a member of the cooperative litigates against a decision taken by the cooperative on a majority basis that affects the provision of the real estate product, such litigation cannot be seen at par with one filed by a purchaser against an unrelated developer.

Administrative reach and jurisdiction of the Authority
The fourth issue is that of the Real Estate Regulatory Authority itself. For one, the law allows a State to create one or more real estate regulatory authorities as may be needed with regard to its geographical extents, diversity and requirements with respect to real estate development activity. Now, while consumer protection law has a very well defined spatial grid – a forum being present in every district, and with a State forum being usually located in the capital, none of the rules notified thus far seem to have taken cognisance of this fact, and notified authorities in a decentralised manner – setting up benches where there is a high degree of real estate development activity – whether on-going or envisaged. This would effectively imply that projects being carried out in districts of Gautam Buddha Nagar, Ghaziabad, Baghpat, Meerut and Bulandshahr in Uttar Pradesh would have to deal with a an authority bench in Lucknow; whereas all other approvals (except environmental clearance – SEAC, SEIAA) would be obtained locally.

The second problem with this arrangement is the responsibility of the Regulatory Authority. Unlike other parties that accord development permission, viz. a local Government, fire services, PWD etc. the real estate regulatory authority has no ‘assurance’ function – such as building control and regulation by a municipality, certifying fire safety etc. A careful reading of the law and its appurtenant rules would indicate that it is not even in a position to state or authenticate exactly how many approvals and/or NOCs are required, but its powers include sanctioning or stoppage of a project if any requisite approval is not accorded on time. In effect, the function of the Authority is essentially to create an information forum that tells a potential buyer (again, without taking any responsibility for the veracity of the function) whether a potential project has fulfilled its obligations prior to commencement of construction, or if constructed, abided by all conditions stipulated by different parties. It may be noted that the Authority also takes no responsibility of streamlining the approval and/or NOC process, nor does it reduce the number of approvals required for a real estate project in the first place.

Admittedly, a number of these issues would be automatically resolved in a highly planned environment where a real estate project is carried out on a parcel of land that has been earmarked and shaped by a competent external development agency for such purpose – such as a plot inside a planned township designed to support a real estate project of the said nature. However, (1) this is not always possible, and (2) even where this is possible, the law does not cover holding external authorities responsible for off-site functions such as providing external development such as approach roads, power connectivity, water and sewer upstream connections etc. whose delay can adversely affect the on-time performance of the project.

Side-effects of demonetisation - revisited
One key feature of the law is the requirement to have 70 per cent all receipts received under a project to be kept in an escrow account to be used exclusively by the project for which such receipts have been taken. Generally, this has been perceived as a very welcome move, given the fact that several developers are currently contesting cases in courts of law where they have indicated that they have run out of monies and are neither in a position to deliver the real estate product, nor refund the money. However, this provision makes certain assumptions:

  • That every developer is susceptible to such practices: This is logically possible, since there is no evidence or indication otherwise;
  • That each project of each developer has a separate account: This is true for larger developers, but not so for smaller developers – if they are working on a number of ‘borderline’ cases
  • Developers working on real estate projects are subject to the same conditions anywhere across the country

In a certain way, this requirement is a restriction, whether reasonable or not is a subject for a separate discussion, but it essentially implies that all developers are deemed pre-emptively guilty of not being able to deliver real estate products on time. Per se, diversion of funds between different projects (and not different ‘entities’) is not an offence on most counts of financial propriety; so long as the product is delivered on time and of the agreed quality and quantity. However, this stipulation does pose certain constraints on smaller developers as indicated below:

Let us say that such a small developer, M/s XYZ, who is otherwise reputed for doing several small but good quality projects in smaller towns and with timely delivery – has two projects positioned in two different locations  – A & B. Location A has a reasonable level of development activity and a good number of competing real estate projects coming up within the same space and at the same time, while location B is being planned for some major economic activity within the next six to ten years, but isn’t showing much activity at present. The two projects may be called A1 and B1 for convenience; project A1 is supposed to be delivered in two years, while project B1 can be delivered in five years’ time – during which external development of services such as water power, roads etc.

would happen near the site of project B1. Since project A1 is competing with a good number of similar developments in the same area, M/s XYZ decides to lure customers to project A1 by waiving off all requirements of any payment until possession.

However, since M/s XYZ needs operating capital, they have to arrange for monies from somewhere. The firm can seek, at a rather high cost, debt from a financial institution, the cost of which is back loaded into the final cost of the units under project A1, making the product more expensive and accordingly losing competitiveness.

Alternatively, the firm can advertise project B1, which they have to deliver in five years anyways, and divert a portion of the advance proceeds to meet the operating expenses of project A1 as an interest free internal transfer. Project A1 completes on time and purchasers get possession of the units; some of the proceeds are restored to the operating costs of project B1, which can resume its normal course of development – and still give delivery within the stipulated time of five years.

Now – this should not have been a problem, since M/s XYZ has a very reasonable reputation in the market, and purchasers of products under project B1 would be well aware that they are booking a product that would be available only in five years’ time, since the area is underdeveloped at present but carries promise of development in the future. However, in the eyes of law, M/s XYZ would have violated several provisions thereof with respect to project B1. For one, M/s XYZ would most certainly have violated the provision that makes 70 per cent of all proceeds from one project to be retained in an escrow account that would have to be used in the same project. Secondly, M/s XYZ would also violate the provisions that restricts soliciting or advertising projects before approval of the competent authority – which would not be forthcoming since NOCs would not be available from agencies which are yet to set up a presence in the area. Quite possibly, M/s XYZ will also be guilty of having sought more than the prescribed amount that can be charged as upfront payment for a real estate product prior to delivery.
The problem is more pronounced if project B1 is actually plotted development, i.e. where the developer’s obligation is to provide a serviced plot of land to the purchaser – and the bulk of the investment is into roads, power lines, water supply, sewer lines, drainage, parks and horticulture – most of which is also dependent on upstream availability of trunk infrastructure which is yet to be laid out.

As a small developer, M/s XYZ would not possibly have the luxury of a large amount of cash reserves, and in all probability, also have arranged for high cost finances to arrange for monies to buy the land for project B1 – making the prospects of availing debt for short term operating expenses difficult. In such a case, the above example would appear to indicate that the provisions of the law require M/s XYZ to have sufficient liquidity to operate in compliance, something that may or may not be possible for M/s XYZ to achieve.

The requirement for the 70 per cent escrow is also likely to erode pre-launch offers – where developers entice potential buyers by offering them the option to pay only after taking possession. Traditionally, developers have almost never relied upon financial institution loans, using upfront payments from a number of projects (some of which are due for late delivery, i.e. after several years) as interest free liquidity. Now, with restrictions also placed on the amount of monies that can be drawn from potential purchasers prior to development, developers will have limited recourse but to seek low cost credit from banks and other financial institutions. Since these are not interest free per se, and may be offered as a mezzanine credit (mix of debt and equity), operating costs for developers may rise significantly – resulting in overall higher costs for the purchaser.

Real estate agents – still (un)governed?
Another key aspect of the real estate regulatory law is the set of provisions to govern real estate agent (the term itself possibly requiring some modifications so as to either synonymise it with the terms ‘property dealer’ or ‘realtor’, ‘broker’ or whatever such title or style is employed by the person). For some reason, the law states quite clearly what a realtor is not expected to do – but does not per se, set forth what the obligations of a realtor would be in respect to a real estate transaction. By definition, the law defines a realtor as a person who acts either for a seller or a buyer, but not an agent of both – which is a reasonably well laid out practice in international realty practice. It does not – as do not the rules – prescribe a requirement that the services of a real estate agent be obtained only through a contract; or agent’s entitlement to a fee – provisions that an older State law - Haryana Regulation of Property Dealer and Consultancy Act, 2008 had (interestingly, this law is not listed in the list of repeals in the RE(R&D) Act) already incorporated. Except for the requirement of registration (a process requiring a fee) and the obligation of maintenance of a register, the instant law does not actually mainstream or bring professional standards into property brokerage.

Where is the law headed as of now?
As of the time of authoring this paper, a total of seven States and all the Union Territories have already promulgated rules and regulations appurtenant to the main law. However, a number of concerns have risen with respect to States having effectively ‘diluted’ the provisions of the main law, particularly with respect to the applicability of law to on-going projects, statutory protection to homebuyers and disclosure of information by developers.

Applicability of the law
The applicability of the law to on-going projects remains a matter of concern. By default, the law should apply to all such projects where a completion certificate (or occupancy certificate, as it is called in some States) has not been issued. However, some States have gone ahead with rules that effectively dilute the provisions of the law, by viz:

  • Making the law not effective with retrospective effect – i.e. projects that were already under development on the day of notification of the rules being exempted
  • Exemptions to projects where services have been handed over the local authority or resident welfare association or association of apartment owners for maintenance
  • All such projects where the development works have been completed and sale/ lease deeds of sixty percent of the apartments/ houses/ plots have been executed.

While it is a separate matter that developers do not even apply for completion certificates and hand over possession to the end-user after having extracted all due monies from them, it is important to understand that the mere issuance of a completion certificate does not per se does not end the obligations of a developer. As per the provisions of the law, the developer is liable for preventive maintenance and upkeep of the constructed property against any construction linked defects for a period of five years. This in effect provides adequate basis to hold the developer responsible for all such work that he had undertaken with respect to the project from the date of transferring possession to the last purchaser.

Possible reason for increase in costs?
As of this time, the law shall be applicable to all such projects where completion or occupancy certificate has not been issued by a competent authority by 01 May 2017. This is seeing a rush from developers who have largely completed their projects to ensure completion before the law comes into effect. There is apprehension that compliance with the law itself poses an increase in operating costs on account of increased compliance, a new set of fees to be paid for registration of a project, and a generally delayed start in case certain approvals are not accorded in time.
Another issue that is yet to be addressed is the requirements of the Authority to host the records and information. A quick reading of the rules would appear to indicate that the Authority, for all practical purposes duplicates all the documents processed by a building permission according authority for storage and archival. However, while building permission according authority (usually the municipality) uses this information for building control and regulation – an obligatory constitutional function – the Authority’s requirement for archiving this is for record keeping and audit purposes at best.

In conclusion
The exercise of demonetisation and subsequent remonetisation has posed new challenges for the real estate sector, which was already gearing up for compliance with the Real Estate (Regulation & Development) Act, 2016 far before that. The key aspect that needs being addressed is the fact that operating costs for real estate industry may go up while demand may continue to rationalise to the extent where potential purchasers refuse to (or are unable to) pay beyond a certain price. While affordability and the ability to pay for a house has been enhanced to an extent through introduction of subsidies in interest rates, the prices at which houses are sold are considerably on the higher side. There is an urgent need to:

(a) reduce transaction costs and incentivise production of housing stocks – particularly low income ones; this could be taken up through a slew of measures including reducing capital gains tax for farmers who give up their land for development of real estate projects,
(b) rationalise demand of stocks by employing measures that prevent speculative holding of stocks; including crackdown on benaami holdings
(c) Encourage master plans to be compact by reducing sprawl and encouraging redevelopment of existing built up areas; preferably in larger tracts so that there is ample place to include low income segments as well.
(d) Deployment of town planning/ land pooling schemes as an alternative to conventional public land acquisition, with strict deadlines to ensure that real estate products enter the market in a time bound manner.

The implementation of the Real Estate (Regulation & Development) Act, 2016 also needs being re-examined to a large extent. The authority’s functions and operations need not be overlapping or redundant with other authorities – and a simple rationalisation of such functions and processes this will help reduce the compliance cost to be incurred by developers.

Goods and service tax is also an area that must be taken up on a priority basis, applying the same to real estate. By some estimates, the present tax overheads make up for about 26 per cent of the consideration paid for a real estate product; the introduction of GST and tax credits can reduce this overhead significantly to as to be able to absorb compliance costs. An interesting option would be to reclassify goods and services in a manner that allows low income housing to retain a significantly lower tax overhead, such as this way:


The Minister of Housing and Urban Poverty Alleviation, Venkaiah Naidu, recently directed the Secretary of his Ministry to immediately convene a roundtable with all developers, banks and housing finance companies to deliberate in detail as to why no private sector participation has been enlisted under Pradhan Mantri Aavas Yojana (PMAY) and found out reasons for their reluctance in the scheme. While addressing a conference on “Real Estate Sector Post Remonetisation & RERA” under aegis of PHD Chamber of Commerce and Industry, Naidu said that until February 20, 2017, the government had approved Rs 90,000 crore of investments in affordable housing with none in it representing the private sector. The minister said, “On this occasion, Dr Nandita Chatterjee, Secretary (HUPA) to immediately convene a roundtable with all developers bodies, banks and housing finance companies and others concerned to deliberate in detail why there has been no private sector participation under PMAY (urban) so far, and the road ahead in the new eco-system of opportunities. This roundtable also needs to discuss ways and means, if need be, of improving various components of PMAY (urban) to encourage private sector participation.” He further added, “I would expect this roundtable to come out with appropriate business models so that the goal of ensuring Housing for All by 2022 is met.” “Under PMAY (urban), the government has so far, approved construction of over 16 lakh affordable houses with an investment of about Rs 90,000 crore, for which central assistance of about Rs 25,000 crore also has been approved,” explained the Minister, expressing his surprise saying, “I am rather disappointed that not a single proposal has come from private builders so far, even though PMAY urban has been designed envisaging a big role for private sector.” Concluding his remarks, he asked the industry, “Isn’t this a huge opportunity for developers at the ‘bottom and middle of the pyramid? In my view, it certainly is. Then what are you waiting for?” Dr Nandita Chatterjee, Secretary (HUPA), in her remarks explained merits of the Real Estate (Regulation and Development) Act, 2016 saying that its stipulations are equally rewarding for developers and buyers of dwelling units and any compromise on them are subject to legal scrutiny. In his welcome observations, Gopal Jiwarajka, President, PHD Chamber, hoped that with re-monetisation picking up its space, the real estate sector would witness corrections and supplies would match the demand. Rajeev Talwar, Vice President of the Chamber, in his brief utterances requested the minister that private sector participation in affordable housing would become a reality with slight tweak in PMAY and congratulated the minister for his proactive approach towards the real estate. Among others who also spoke on the occasion comprised Chairman, Housing & Urban Development Committee and Director, PHD Chamber Manish Agarwal and Dr Ranjeet Mehta. Here is the report: Real Estate Sector Post Remonetisation & Real Estate (Regulation & Development) Act, 2016 Background On 8th November, 2016, Government of India de-notified specified bank notes of 500 and 100 rupees as legal tender, effectively immobilising about 86 per cent of the currency in circulation at the time. The monetary value of the immobilised currency was retained, subject to the specified bank notes being deposited within the bank account of the holder by 31 December 2016. However, restrictions were imposed as regards withdrawal of such monies in cash form till recently, when daily withdrawal limits were restored to about ten thousand rupees per day per account holder. The entire exercise, broadly termed as ‘demonetisation’ – has been a widely discussed topic insofar as its overall impact of the economy and the issues faced by the public at large. The temporary shortage of cash adversely impacted several sectors that depended on cash, notably wholesale markets, informal sector and even parts of the real estate industry. As it is, the real estate industry involves both formal as well as informal sector stakeholders. The value chain in a real estate project is such that even the most formal sector projects have to necessarily depend on certain components of informal markets – be it sourcing of labour, materials etc., many of which transact entirely in cash. A more insidious aspect of the real estate market is the prevalence of cash transactions in buying and selling of real estate, often unaccounted for at both the buyer and seller ends – and therefore escapes taxation liabilities or scrutiny. Although this practice is usually prevalent in the secondary markets, i.e. where real estate assets are re-sold, there have been instances of unscrupulous developers also demanding a certain portion of the sale consideration in (unaccounted) cash. By some estimates, the real estate sector itself is a significant repository of unaccounted money in India, usually by way of property purchased in ‘benaami’ form in cash. By other estimates, about thirty per cent of monies cha<img src="https://www.constructionworld.in/img/cw-feb27-levy.jpg">nging hands within the real estate transactions are unaccounted. A key purpose of demonetisation was to eliminate such unaccounted cash changing hands during such transactions. Although whether such purpose has been served or not remains a matter of debate, a visible impact of demonetisation has been a major shift in both buyer demand as well as launch of new projects, leading to a fall in real estate prices. This in turn has sparked conjecture as to whether the exercise has caused a lasting, if not permanent damage to the sector and whether corrective measures will restore the sector to its former glory. Of course, from a buyer’s perspective, demonetisation is largely perceived to have caused a market ‘correction’ – rationalising prices to levels that are affordable to the purchaser. Whether or not this is a sustained situation remains to be seen. As of this time, the situation as regards availability of cash has largely improved, nearing the position it was in prior to the 8th of November, 2016 – effectively ‘remonetising’ after having initially de-monetised. However, the Union Budget of 2017-18 has introduced certain new stipulations on handling of cash in transactions – the most notable one being the restriction of usage of cash in any transaction equal to or above the amount of three lakh rupees. This essentially implies that developers and/or sellers will not be able to ask for cash as a method for compensation for any real estate asset, if such cash amounts to over and above 3 lakh. Likewise, large cash deposits made into a bank can also attract scrutiny as to whether such amounts were obtained after due consideration of accounts and taxes. In effect, the exercise of demonetisation appears to be targeted towards eliminating the use of unaccounted cash within real estate transactions. At the same time, the market is als<img src="https://www.constructionworld.in/img/cw-feb27-levy.jpg">o gearing up to meet the requirements of the Real Estate (Regulation & Development) Act, 2016, which comes into effect in totality on 01 May 2017 (only a part of the law was notified on 30 April 2016). This is a concerted effort at the National level to bring some sense of order and accountability to developers who have been known to renege on delivery of real estate products or deliver sub-standard products, largely by ensuring a series of compliances to be enforced and monitored by a specific regulatory authority appointed at the level of the State Government. At the time of writing this paper, about six States have either notified or are in the process of notifying appurtenant rules and regulations to the law. The purpose of this paper is to examine the possible consequences of the exercise of demonetisation and the subsequent remonetisation on the real estate sector and its readiness to comply with the Real Estate (Regulation & Development) Act, 2016 – which itself has certain issues that may require addressing – more so after the demonetisation and remonetisation exercise. Demonetisation and what it has done to the real estate industry It would be worthwhile to see why unaccounted cash has played such an important role within the real estate sector. A key reason for this is a general tendency to avoid taxes – both by sellers as well as purchasers. Real estate has been a time honoured place to ‘park’ monies – accounted or otherwise. Unaccounted monies have been widely used to purchase ‘benaami’ property, broadly understood as property where the purchaser is a different individual than the one who has paid the actual consideration. Unaccounted monies have also been used to settle transfers that may otherwise seem like a gift from a donor to a recipient, but have a consideration paid in unaccounted money by the recipient to the donor. Since a transaction carried out in unaccounted money also poses a windfall gain to the seller, in most cases – they have been willingly complicit in being party to the same. Ironically, while the purpose of using of unaccounted cash in a real estate transaction has been to avoid taxes and reduce the effective cost(s) of transaction, they have actually, in effect, been instrumental in driving up pricing within the real estate sector. This has been so because of a steady supply of real estate assets that may not find actual physical use in the near future, but provide suitable avenues for ‘parking’ of unaccounted monies. In essence, the value of such real estate assets is not determined by their potential for physical use, but for their potential to act as a vehicle to convert unaccounted money to hard assets. Of course, this principle is also applied by people who invest into real estate assets with accounted money, but with the purpose of speculation only, i.e. without the intent of ever actually using the asset physically. In essence, the combined effect of using real estate assets as a repository to ‘park’ unaccounted monies as well as investments for speculative purposes have significantly altered the basis for valuation of these assets, making them far more expensive than what it should have been if its valuation was just to be performed keeping in view its usability. This distortion is most evident in terms of the difference in the rental values and the equated monthly instalments payable if the property is purchased – the latter often being tens of times higher than the former. The step of demonetisation, i.e. immobilising specified bank notes has essentially caused the demand to temporarily, if not permanently, slow down – in the purchaser segments which have traditionally used real estate to ‘park’ unaccounted monies. In terms of the supply stock, this has affected sales within the secondary markets, i.e. where properties are under resale from an original allottee to a prospective purchaser, as well as assets developed at a small scale, viz. petty contractors working as developers. Primary markets, i.e. where real estate assets are sold by developers to purchasers, and usually entirely in accounted monies - have been affected too, although differently. The removal of almost 86 per cent of the currency in circulation has caused demand cycles to shift. In essence, a purchaser who was planning to buy a house in the current year is now likely to defer making such a purchase by at least a year. Although not entirely irrational, the sudden paucity of cash in an economy that has largely been dependent upon cash for most out of pocket transactions typically tends to slow down spending – as was seen in this case, and the effects spill over into large purchases which actually do not involve hard currency in the first place! In turn, the house that a developer was expecting to sell this year would now be sold in the subsequent year – adding to the holding costs of the asset for the developer and in turn, a potentially lesser margin. In most cases, developers would find it easier and less damaging to simply reduce the price to avoid facing long term losses, and complete the sale of such a house this year itself, essentially causing prices to lower. However, the above situation would be applicable if the developer has a ready inventory to sell. As has been seen in recent times, most developers have overleveraged their available financial resources – leading to massive slowdowns in construction and time overruns of several years before the asset is actually ready to transfer to the purchaser. Typically, working capital for real estate assets is provided for by what are called CLPs or construction linked payments – payments to be made by the purchaser at certain stages of completion of construction, which in turn maintain a working capital balance and stable cash flow for the developer. However, the last few years have seen a certain degree of slowdown – largely due to a large number of developers entering the same space with a multitude of projects, essentially creating an oversupply of sorts. To distinguish themselves, many developers made commitments of ‘no further payments till possession’ after an initial payment. As a result, they require alternative arrangements for working capital – and this is usually drawn from other projects that are being funded through CLPs. With demonetisation and the consequent ‘demand shift’, such alternative sources have also tended to ‘dry up’ – leading to suspension of work on several projects. Cash transactions also hold sway in terms of several informal sectors involved in development of real estate, notably construction itself. Most developers, even the most established and organised ones – employ a number of contractors who can compensate labour workforce as well as sources of material supply only in hard currency. With the availability of hard currency impeded by demonetisation, even developers with adequate monies in banks find it difficult to maintain cash repayments to such contactors – and in turn have little option but to suspend work. In effect, most of the activities that define a healthy sector – have been affected by the demonetisation exercise insofar as the real estate sector is concerned: Slowdown in production, including stoppage of launch of new schemes Shifting of demand, reduced purchaser interest in new products Prices being lowered to clear ready inventory Now, as the shortage of cash reduces and new measures have been instituted to prevent the usage of cash in larger transactions, it remains to be seen as to how the sector would behave within the new circumstances. Remonetising again: do real estate prices come down or go up? As and how the availability of hard currency cash improves, small transactions that were dependent upon cash transactions should improve – such as payments to suppliers of material and labour. This should effectively help the sector overcome the slowdown that had crept in due to the inability to make payments. Going up…… However, this may not be able to address the larger issue of usage of cash in other forms of transactions within the real estate production process – such as procurement of land. Demonetisation has not per se, improved accessibility to the banking sector, and has also not altered the perception towards tax avoidance. Prior to demonetisation, deals between developers and land owners often used to be entirely cash based. Such landowner would in many cases be an agriculturist or farmer, immune to the levy of taxes as per existing law(s). However, when such land is alienated by way of sale to a developer for development for a real estate project, proceeds from such a sale would accrue to the landowner. This is taxable to a significant extent – being construed both as capital gains, as well as income. This is usually not perceived positively by an individual who has hitherto legitimately stayed under the taxation radar – and therefore the insistence on completing the sale or transfer in cash. If these costs of tax, i.e. capital gains as well as income tax is front loaded on to the cost at which the developer buys land from the farmer, the input cost of the land is usually considerably higher for the developer. Therefore, from the perspective of the developer – a cash transaction for the land actually lowers costs for him as well. It may be kept in mind that the developer’s costs also include stamp duty and conversion charges payable to convert the use from agricultural to non-agricultural. A workaround to the above that is commonly employed is to make the landowner a shareholder in the project, which effectively eliminates the stamp duty payable in terms of transfer (since there is no real ‘transfer’ happening in the first place), and then settle his or her dues in cash, often informally. The issue with this arrangement is that the transfer of land to the end purchaser(s) is often left out, leading to a situation where even after the completion of the project, the land is shown as belonging to the landowner in the record of rights, while in reality the same belongs in part to every person who has purchased property within the real estate project. If cash transfers are now made illegal for these kind of land based transactions, there is a very real possibility that landowners will load the tax costs from such sales on to the price at which they transfer land to the developer, and in turn the developer loads this cost back to the purchaser, increasing prices of the real estate product, but with no substantial gain in margins for the developer. If the demand for purchase of such assets continues as it was prior to demonetisation – as in using such assets largely as a means of long term capital gains, enhanced prices could still be sustained. However, there have been changes in the shape of demand as well, which has certain mitigatory effects on the pricing of real estate assets Going down…… Emergent public policy in land use and development has advocated increases in floor area ratio, which determines the amount of built-up space which a developer can construct on a given parcel of land. For Governments, granting a higher floor area ratio is a no-cost incentive, allowing a developer to ‘build more’ on the same parcel of land. Developers, on their end have traditionally used this added capability to build a less number of larger houses as opposed to a greater number of smaller houses, usually so because they are more comfortable selling one larger house at a premium and a significantly high margin as compared to three several smaller houses with a smaller margin and possibly no premium. This, in turn implies that the developer had been catering largely to a niche clientele that sees value in purchasing a larger house – often in a far flung place. However, since this clientele is a niche segment, there are only a certain number of units that can be sold at a premium. This fact is now gradually dawning upon developers – and the focus is now to provide value for money homes that can attract more number of buyers with a lesser budget. However, as previously discussed, these stocks are often produced in areas which do not cater to basic standards of liveability, viz. limited connectivity to places of work, and lack basic economic and social infrastructure, and consequently there is little value in terms of usability of such an asset. However, the asset is still worth investing into for speculative long term capital gains. There is an increased awareness of the fact that the pricing of rea estate assets is greatly distorted on account of such speculation – largely because there are no real recurring costs involved in ‘holding’ the asset without using it. By some estimates, for instance – over 60 per cent of housing stocks produced in the last five years within the Central National Capital Region is reported to be unoccupied. The city of Delhi itself poses a unique dichotomy – presence of a large number of unoccupied housing stocks, with a slightly lesser number of shelterless households – co-existing in the same place and time (Census, 2011). If these vacant stocks were to be subjected to a significant holding tax or penalty, it will become unattractive for speculators to invest into – and in turn reduce demand for paying high prices. At such juncture, even if taxes paid by a seller of land is front loaded on to the final price at which the real estate asset is transferred to the purchaser, the developer may not mind cutting profit margins to ensure that the price still stays affordable. The anomaly in demand shape is further exacerbated by the fact that 95 per cent of the urban housing shortage in India exists in the income segments, where a typical household earns less than Rupees Six Lakh per annum. That essentially also implies that there is only a limited shortage within the segments that formal housing actually caters to, essentially implying that there is something of an oversupply already happening, as illustrated earlier. In effect, demonetisation and the subsequent remonetisation have the potential to increase input costs in production of real estate, but coupled with other factors – particularly the change in the shape of demand because of oversupply and possible regulation to discourage idle holding of real estate stocks, could prevent increase in pricing of such assets. In effect, it would discourage developers from investing into development of real estate assets for middle to high income group. Reforms to the rescue? Mitigatory reforms to reduce in-production costs – particularly by way of statutory levied - have been undertaken at the level of Government of India on at least two occasions. The first was undertaken during the implementation of the Jawaharlal Nehru National Urban Renewal Mission (2005 – 2012) to reduce the incidence of stamp duty on sale and purchase of fixed assets. While States did follow the practice of reduction of stamp duty for a while, they have compensated by raising circle or consideration rates proportionately – which would essentially keep revenue estimates intact. The second measure was taken up in course of the recently launched Pradhan Mantri Awas Yojna (2015 till date). This reform advocates that States may eliminate the cumbersome administrative process as well conversion charges for changes in land use for areas that are already classified as urbanisable or what is meant to be developed as per a statutory master plan or development plan. This reform is yet to catch on, while many States have again raised stamp duty rates back to what it was prior to 2005. This is largely because States are reluctant to waive off established sources of revenue in the hope that a decreased cost of transaction will lead to an increased volume of transactions. As a result of the reforms and their subsequent ‘rollback’, a number of areas have emerged where ‘circle rates’ (rates deemed as benchmarks for the sale and purchase of real estate and on which stamp duty is computed) are higher than actual considerations paid between buyers and sellers. In effect, while the Government’s effort to reduce the incidence of hard currency in real estate transactions in laudable, the factors that have led to its proliferation have not been addressed. Under such circumstances, there can only be increase in the costs of doing business in real estate – something that will have to be borne by the end user or purchaser. It may be noted that the temporary shortage of cash had ‘shifted’ the demand for purchase of real estate assets – not eliminated the same. As hard currency availability improves for people to address small cash purchases, the belief that one’s money is actually safe shall most likely be re-established, leading to normalisation of demand. As formal sector real estate transactions have been traditionally done in forms other than cash, this method will stay unaffected. However, the targeted avoidance of cash in transactions will also imply that small time developers – who have dealt with largely cash payments – will also either have to change the manner in which they operate or possibly wind up operations altogether. Re-sale or seconds markets are also likely to react by trying to front load tax liabilities of the seller on to the sale price of the asset, unless such a sale is being done under distress. Potentially, this could drive up the demand prices. However, for such prices to sustain, there has to be a good number of people willing to pay such prices – and in accounted monies. Where such purchasers are hard to come by, the price of re-sale markets will also stagnate, if not fall. The other anomaly that has will affect how real estate markets operate is the Real Estate (Regulation & Development) Act, 2016 that proposes to regulate the manner in which developer(s) conduct themselves in terms of production and disposal of a real estate project. Real Estate (Regulation & Development) Act, 2016 The Real Estate (Regulation and Development) Act, 2016 came into existence after almost eight years of deliberations, largely fuelled by concerns over unscrupulous practices of developers such as delaying projects, demanding unscheduled or unaccounted for payments without actually delivering the product, misrepresentations and so on.  The Act makes it mandatory for promoters to register all projects with the State Real Estate Regulatory Authority, along with extensive information about them, the project implementation schedule, layout plan, land status, government approvals, sub-contractors, etc., which will be made available to consumers. All commercial and residential projects with a plot area of more than 500 sq. meters or eight apartments inclusive of all phases will have to be registered with Authority. Projects which have not received a completion certificate and are ongoing will also be required to be registered with the Authority within a period of three months of the commencement of the Act. Today consumers have access to some of the information regarding the real estate project they wish to invest into. However, this information is usually available only for listed companies in the realty sector. Homebuyers do not have access to similar kind of information in case of unlisted companies. Making it mandatory to provide this comprehensive information available in respect of upcoming as well as ongoing projects to all will help homebuyers take an informed decision, irrespective of whether they buy from a listed company or from an unlisted company. It will also ensure that projects get completed on time and consumers get what they have been promised. But there are other enabling factors that will go a long way in projects being completed on time. Timely completion and delivery Project delays are one of the major issues currently plaguing the real estate sector. In the residential property sector, a delay of three to four years is the accepted norm; in certain cases, projects get delayed by more than seven to eight years. Overleveraging by developers is a primary reason for such delays – they typically divert funds from one project to another, which results in a shortage of funds to complete the ongoing project. The Act mandates that developers will now have to deposit 70% of the collections from homebuyers in a dedicated account to be used only for that particular project. It has been clarified that if the land cost has already been incurred by the Promoter, he can withdraw the amount to that extent. No land based surprises Another factor that will help in the timely completion of projects is that land will be free from encumbrances. It has been observed that after the initiation of construction, claims are made in respect to the land. This often results in litigation and deters the homebuyer from approaching the promoter for the purchase of a flat. Concerns are also raised in respect of monetary claims made in respect of disputes over the land on which the project is constructed. For this purpose, the Act provides for insurance of the land title which will ensure that claims made on the land can be satisfied by the insurance companies. The developer will not be burdened to make payments in respect thereof. So far, insurance companies have not launched such schemes but it is prevalent in some European countries. The same shall ensure marketability of the apartment to be purchased by the homebuyer. These provisions, coupled with the mandate that developers need to furnish all information regarding the project, will go a long way in ensuring that projects get completed on time. There is another compelling reason for developers to complete the project on time—imposition of similar penal interest for developers and homebuyers. Challenges galore However, a quick reading of the law poses several questions that are now being attempted to be answered by State Governments, as they develop rules appurtenant to the law. As of the time of this paper, the States of Gujarat and Uttar Pradesh have notified rules, as has the Government of India for all Union Territories. However, at first glance, these rules (although customised for specific territories) do leave some questions to be answered. Too many laws? A key issue is the reconciliation of land laws and apartment ownership acts pre-existing within the State with the new law, and extension of its applicability. As for the latter, the law is applicable in what it defines as ‘urban areas’, a term that encompasses all municipal areas and areas within the control of an analogous local authority, or part of a planning area. However, several States do not have planning areas defined – and several Census towns (areas which are urban as per Census, but not under the municipal law of the State) are still governed by Panchayats. Although building and/or development control rules may exist for such areas as laid down by the town and country planning law or municipal law, these would not ordinarily fall within the description of ‘urban areas’ as defined under the Act. A situation such as Madhya Pradesh could also arise in Odisha, West Bengal and all such States where planning areas exist only when defined by a competent authority and not by default. This could be addressed by States by altering the definition of a ‘planning area’ – but this would also obligate the State to plan for such areas under law. In terms of being able to relate with existing laws of the State(s), the two laws that seem to conflict with this law are: (1) land revenue code/ land reforms act, and (2) Apartment ownership act – both of which partially overlap with the idea of the definition of real estate and treatment of common property. The law requires that ‘common areas’ – a definition that technically includes land on which the real estate project has been developed, to be conveyed to the association of apartment owners, a provision that is partially also reflected in the apartment ownership acts as well. However, as per the revenue code, the concept of land existing as a physical embodiment of ‘undivided, unspecified interest’ is often not clear, resulting in a situation where the developer or promoter retains residual interest in the property even after all apartments or units have been sold. Likewise, many apartment ownership acts reflect a development control stipulation that requires any unit with a carpet area of over a particular denomination (say, 100 sq. meters) to be mandatorily provided with a parking space for one equivalent car space (ECS); a fact reinforced by the Hon’ble Supreme Court in 2010 while interpreting the Maharashtra Ownership of Flats Act, 1963. The instant law, on the other hand makes an implicit statement that a garage may, actually be extricable and saleable from the remainder of the apartment. The conflict with Consumer Protection Act, 1986 That the law is already in conflict with Consumer Protection Act, 1986 is evident as per section 71 thereof, by which a litigant implicitly has choice of pursuing litigation under one of the two laws – the instant law or the Consumer Protection Act, 1986. However, to be fair to the intent of the law, the Consumer Protection Act, 1986 typically activates after a consumer (in this case, a purchaser) is aggrieved on account of non-delivery of a real estate asset, or worse, is delivered a substandard or disputed asset. The function of the Real Estate Regulatory Authority in this instant law is to constantly monitor the progress of the project in course of its development – raising concerns appropriately and acting upon them – rather than waiting for the time when a party is already aggrieved. Applicability of the law to a ‘real estate project’ The other issue regarding the applicability of the law is regarding the definition of a real estate project – the stipulations of the law indicate that this would comprise any such project where there are eight or more separate transferable units, or where the total transferable area is equal to or exceeds 500 square meters. This potentially raises the question of ‘borderline’ cases – where the potential built up area (as per FSI permitted) exceeds the requisite area. Within the National Capital Territory of Delhi, a common practice that prevails is that of ‘builder floors’ – where a single plot owner would enter into an arrangement with a ‘builder’ to develop and sell each floor to a separate owner, usually with the lower floor being reserved for parking, sump and other services. This is where this provisions works differently, if the plot size is below 125 sq. meters, with an FSI of 4, and where the plot equals or exceeds 125 sq. meters with the same FSI – since the latter case would attract provisions of the law, and the former would not. Public and private sector developers – potentially discriminatory approach? The third issue is that of the definition of a promoter – the law has rightly and accurately not distinguished between public and private parties engaged in development of real estate – residential or otherwise. However, whereas the impact and the requirement of compliance by private sector developers is adequately clear, there is a need to clearly define where the law has primacy over conflicting procedures and/or practices set forth in regulations of authorities (viz. development authorities and housing boards) that may be contradictory to provisions in the law. Development authorities, for instance are governed by asset disposal rules – which govern the passage of a real estate product to a purchaser or allottee. An ideal course of action would have been to reconcile the rules to the provisions of the new law – something that has thus far not been observed as yet. Several municipal bodies are engaged at this time in providing houses under the Pradhan Mantri Awas Yojna – the definition of a promoter being applicable as much as to them as any developer; the provisions of the law would apply to them in such a case. A cooperative (group housing or house building), for instance – which is described as a promoter as per the law – would ordinarily not have to advertise sale of houses – it would actually advertise memberships instead, which would be like a surrogate advertisements for a housing product – even without having land in possession in the first place. Now, even though the cooperative is a promoter in terms of the law, it also represents the collective body of purchasers or end users – where decisions are usually taken on account of a majority vote. Now, if a member of the cooperative litigates against a decision taken by the cooperative on a majority basis that affects the provision of the real estate product, such litigation cannot be seen at par with one filed by a purchaser against an unrelated developer. Administrative reach and jurisdiction of the Authority The fourth issue is that of the Real Estate Regulatory Authority itself. For one, the law allows a State to create one or more real estate regulatory authorities as may be needed with regard to its geographical extents, diversity and requirements with respect to real estate development activity. Now, while consumer protection law has a very well defined spatial grid – a forum being present in every district, and with a State forum being usually located in the capital, none of the rules notified thus far seem to have taken cognisance of this fact, and notified authorities in a decentralised manner – setting up benches where there is a high degree of real estate development activity – whether on-going or envisaged. This would effectively imply that projects being carried out in districts of Gautam Buddha Nagar, Ghaziabad, Baghpat, Meerut and Bulandshahr in Uttar Pradesh would have to deal with a an authority bench in Lucknow; whereas all other approvals (except environmental clearance – SEAC, SEIAA) would be obtained locally. The second problem with this arrangement is the responsibility of the Regulatory Authority. Unlike other parties that accord development permission, viz. a local Government, fire services, PWD etc. the real estate regulatory authority has no ‘assurance’ function – such as building control and regulation by a municipality, certifying fire safety etc. A careful reading of the law and its appurtenant rules would indicate that it is not even in a position to state or authenticate exactly how many approvals and/or NOCs are required, but its powers include sanctioning or stoppage of a project if any requisite approval is not accorded on time. In effect, the function of the Authority is essentially to create an information forum that tells a potential buyer (again, without taking any responsibility for the veracity of the function) whether a potential project has fulfilled its obligations prior to commencement of construction, or if constructed, abided by all conditions stipulated by different parties. It may be noted that the Authority also takes no responsibility of streamlining the approval and/or NOC process, nor does it reduce the number of approvals required for a real estate project in the first place. Admittedly, a number of these issues would be automatically resolved in a highly planned environment where a real estate project is carried out on a parcel of land that has been earmarked and shaped by a competent external development agency for such purpose – such as a plot inside a planned township designed to support a real estate project of the said nature. However, (1) this is not always possible, and (2) even where this is possible, the law does not cover holding external authorities responsible for off-site functions such as providing external development such as approach roads, power connectivity, water and sewer upstream connections etc. whose delay can adversely affect the on-time performance of the project. Side-effects of demonetisation - revisited One key feature of the law is the requirement to have 70 per cent all receipts received under a project to be kept in an escrow account to be used exclusively by the project for which such receipts have been taken. Generally, this has been perceived as a very welcome move, given the fact that several developers are currently contesting cases in courts of law where they have indicated that they have run out of monies and are neither in a position to deliver the real estate product, nor refund the money. However, this provision makes certain assumptions: That every developer is susceptible to such practices: This is logically possible, since there is no evidence or indication otherwise; That each project of each developer has a separate account: This is true for larger developers, but not so for smaller developers – if they are working on a number of ‘borderline’ cases Developers working on real estate projects are subject to the same conditions anywhere across the country In a certain way, this requirement is a restriction, whether reasonable or not is a subject for a separate discussion, but it essentially implies that all developers are deemed pre-emptively guilty of not being able to deliver real estate products on time. Per se, diversion of funds between different projects (and not different ‘entities’) is not an offence on most counts of financial propriety; so long as the product is delivered on time and of the agreed quality and quantity. However, this stipulation does pose certain constraints on smaller developers as indicated below: Let us say that such a small developer, M/s XYZ, who is otherwise reputed for doing several small but good quality projects in smaller towns and with timely delivery – has two projects positioned in two different locations  – A & B. Location A has a reasonable level of development activity and a good number of competing real estate projects coming up within the same space and at the same time, while location B is being planned for some major economic activity within the next six to ten years, but isn’t showing much activity at present. The two projects may be called A1 and B1 for convenience; project A1 is supposed to be delivered in two years, while project B1 can be delivered in five years’ time – during which external development of services such as water power, roads etc. would happen near the site of project B1. Since project A1 is competing with a good number of similar developments in the same area, M/s XYZ decides to lure customers to project A1 by waiving off all requirements of any payment until possession. However, since M/s XYZ needs operating capital, they have to arrange for monies from somewhere. The firm can seek, at a rather high cost, debt from a financial institution, the cost of which is back loaded into the final cost of the units under project A1, making the product more expensive and accordingly losing competitiveness. Alternatively, the firm can advertise project B1, which they have to deliver in five years anyways, and divert a portion of the advance proceeds to meet the operating expenses of project A1 as an interest free internal transfer. Project A1 completes on time and purchasers get possession of the units; some of the proceeds are restored to the operating costs of project B1, which can resume its normal course of development – and still give delivery within the stipulated time of five years. Now – this should not have been a problem, since M/s XYZ has a very reasonable reputation in the market, and purchasers of products under project B1 would be well aware that they are booking a product that would be available only in five years’ time, since the area is underdeveloped at present but carries promise of development in the future. However, in the eyes of law, M/s XYZ would have violated several provisions thereof with respect to project B1. For one, M/s XYZ would most certainly have violated the provision that makes 70 per cent of all proceeds from one project to be retained in an escrow account that would have to be used in the same project. Secondly, M/s XYZ would also violate the provisions that restricts soliciting or advertising projects before approval of the competent authority – which would not be forthcoming since NOCs would not be available from agencies which are yet to set up a presence in the area. Quite possibly, M/s XYZ will also be guilty of having sought more than the prescribed amount that can be charged as upfront payment for a real estate product prior to delivery. The problem is more pronounced if project B1 is actually plotted development, i.e. where the developer’s obligation is to provide a serviced plot of land to the purchaser – and the bulk of the investment is into roads, power lines, water supply, sewer lines, drainage, parks and horticulture – most of which is also dependent on upstream availability of trunk infrastructure which is yet to be laid out. As a small developer, M/s XYZ would not possibly have the luxury of a large amount of cash reserves, and in all probability, also have arranged for high cost finances to arrange for monies to buy the land for project B1 – making the prospects of availing debt for short term operating expenses difficult. In such a case, the above example would appear to indicate that the provisions of the law require M/s XYZ to have sufficient liquidity to operate in compliance, something that may or may not be possible for M/s XYZ to achieve. The requirement for the 70 per cent escrow is also likely to erode pre-launch offers – where developers entice potential buyers by offering them the option to pay only after taking possession. Traditionally, developers have almost never relied upon financial institution loans, using upfront payments from a number of projects (some of which are due for late delivery, i.e. after several years) as interest free liquidity. Now, with restrictions also placed on the amount of monies that can be drawn from potential purchasers prior to development, developers will have limited recourse but to seek low cost credit from banks and other financial institutions. Since these are not interest free per se, and may be offered as a mezzanine credit (mix of debt and equity), operating costs for developers may rise significantly – resulting in overall higher costs for the purchaser. Real estate agents – still (un)governed? Another key aspect of the real estate regulatory law is the set of provisions to govern real estate agent (the term itself possibly requiring some modifications so as to either synonymise it with the terms ‘property dealer’ or ‘realtor’, ‘broker’ or whatever such title or style is employed by the person). For some reason, the law states quite clearly what a realtor is not expected to do – but does not per se, set forth what the obligations of a realtor would be in respect to a real estate transaction. By definition, the law defines a realtor as a person who acts either for a seller or a buyer, but not an agent of both – which is a reasonably well laid out practice in international realty practice. It does not – as do not the rules – prescribe a requirement that the services of a real estate agent be obtained only through a contract; or agent’s entitlement to a fee – provisions that an older State law - Haryana Regulation of Property Dealer and Consultancy Act, 2008 had (interestingly, this law is not listed in the list of repeals in the RE(R&D) Act) already incorporated. Except for the requirement of registration (a process requiring a fee) and the obligation of maintenance of a register, the instant law does not actually mainstream or bring professional standards into property brokerage. Where is the law headed as of now? As of the time of authoring this paper, a total of seven States and all the Union Territories have already promulgated rules and regulations appurtenant to the main law. However, a number of concerns have risen with respect to States having effectively ‘diluted’ the provisions of the main law, particularly with respect to the applicability of law to on-going projects, statutory protection to homebuyers and disclosure of information by developers. Applicability of the law The applicability of the law to on-going projects remains a matter of concern. By default, the law should apply to all such projects where a completion certificate (or occupancy certificate, as it is called in some States) has not been issued. However, some States have gone ahead with rules that effectively dilute the provisions of the law, by viz: Making the law not effective with retrospective effect – i.e. projects that were already under development on the day of notification of the rules being exempted Exemptions to projects where services have been handed over the local authority or resident welfare association or association of apartment owners for maintenance All such projects where the development works have been completed and sale/ lease deeds of sixty percent of the apartments/ houses/ plots have been executed. While it is a separate matter that developers do not even apply for completion certificates and hand over possession to the end-user after having extracted all due monies from them, it is important to understand that the mere issuance of a completion certificate does not per se does not end the obligations of a developer. As per the provisions of the law, the developer is liable for preventive maintenance and upkeep of the constructed property against any construction linked defects for a period of five years. This in effect provides adequate basis to hold the developer responsible for all such work that he had undertaken with respect to the project from the date of transferring possession to the last purchaser. Possible reason for increase in costs? As of this time, the law shall be applicable to all such projects where completion or occupancy certificate has not been issued by a competent authority by 01 May 2017. This is seeing a rush from developers who have largely completed their projects to ensure completion before the law comes into effect. There is apprehension that compliance with the law itself poses an increase in operating costs on account of increased compliance, a new set of fees to be paid for registration of a project, and a generally delayed start in case certain approvals are not accorded in time. Another issue that is yet to be addressed is the requirements of the Authority to host the records and information. A quick reading of the rules would appear to indicate that the Authority, for all practical purposes duplicates all the documents processed by a building permission according authority for storage and archival. However, while building permission according authority (usually the municipality) uses this information for building control and regulation – an obligatory constitutional function – the Authority’s requirement for archiving this is for record keeping and audit purposes at best. In conclusion The exercise of demonetisation and subsequent remonetisation has posed new challenges for the real estate sector, which was already gearing up for compliance with the Real Estate (Regulation & Development) Act, 2016 far before that. The key aspect that needs being addressed is the fact that operating costs for real estate industry may go up while demand may continue to rationalise to the extent where potential purchasers refuse to (or are unable to) pay beyond a certain price. While affordability and the ability to pay for a house has been enhanced to an extent through introduction of subsidies in interest rates, the prices at which houses are sold are considerably on the higher side. There is an urgent need to: (a) reduce transaction costs and incentivise production of housing stocks – particularly low income ones; this could be taken up through a slew of measures including reducing capital gains tax for farmers who give up their land for development of real estate projects, (b) rationalise demand of stocks by employing measures that prevent speculative holding of stocks; including crackdown on benaami holdings (c) Encourage master plans to be compact by reducing sprawl and encouraging redevelopment of existing built up areas; preferably in larger tracts so that there is ample place to include low income segments as well. (d) Deployment of town planning/ land pooling schemes as an alternative to conventional public land acquisition, with strict deadlines to ensure that real estate products enter the market in a time bound manner. The implementation of the Real Estate (Regulation & Development) Act, 2016 also needs being re-examined to a large extent. The authority’s functions and operations need not be overlapping or redundant with other authorities – and a simple rationalisation of such functions and processes this will help reduce the compliance cost to be incurred by developers. Goods and service tax is also an area that must be taken up on a priority basis, applying the same to real estate. By some estimates, the present tax overheads make up for about 26 per cent of the consideration paid for a real estate product; the introduction of GST and tax credits can reduce this overhead significantly to as to be able to absorb compliance costs. An interesting option would be to reclassify goods and services in a manner that allows low income housing to retain a significantly lower tax overhead, such as this way:

Related Stories

Gold Stories

Hi There!

Now get regular updates from CW Magazine on WhatsApp!

Click on link below, message us with a simple hi, and SAVE our number

You will have subscribed to our Construction News on Whatsapp! Enjoy

+91 81086 03000

Join us Telegram