Viewpoint

Transparency, The Winner

October 2017
DR PRASHANTH REDDY discusses the implications of GST and RERA on the real-estate industry.

RERA and GST are the two most significant legislations benefitting consumers in particular and the real estate sector at large. While RERA aims to bring in a regulatory system with accountability for developers, GST aims to ease the way of doing business and bring in all stakeholders into the tax-paying system.

Benefits from both
The real estate sector, which was largely unorganised with only a few organised players, will benefit from both bills. There will be more protection and greater transparency for buyers, bringing in accountability from developers in terms of financial disclosure, timely development of projects and good corporate governance. In fact, the sector could witness large-scale consolidation as some developers may find it difficult to meet cash-flow requirements owing to prohibition on pre-sales until a project is registered after approval with the regulatory authority. This would require these developers to merge or tie up with large developers to co-develop properties.

This will make the sector healthier for domestic and overseas investors. Also, RERA will have a positive impact on the façade industry in terms of accountability, credibility and trust between developers and consumers. They are now required to adhere to the sanctioned plan and specifications of the project. Developers are also responsible for repair of defects found within five years. This means there will be a clear plan sanction and specifications laid down for façade and fenestration works, bringing in clarity on budgeting, planning and execution. Other than developers, RERA also brings in accountability for material suppliers and contractors to deliver quality work as per sanctioned plans and specifications. This augurs well for material suppliers; as a manufacturer of cladding material, prima facie, we are convinced implementation shall have a positive influence on the façade industry, especially for organised players. It will create a level-playing field as the industry is largely dominated by the unorganised sector.

As for GST, it is the single biggest tax reform to be ever introduced in India, aimed at eliminating the difference in indirect taxes applicable across states. The real estate sector stands to benefit from the fact that GST would provide more clarity on tax credits for real estate transactions and allowance of input credit will reduce the price of raw materials and thereby, the final property price. Differential taxes across different states and the complexity of interstate movement of goods resulting in cascading costs owing to delays by interstate border checks will end. Manufacturers, distributors, retailers, etc, everyone in the supply chain till the last distribution chain, except for non-industrial consumers, can avail input tax credit.

Implementation of GST for real estate is expected to reduce the cost of ownership for property buyers and will help bring transparency to the buying process. While more clarity will emerge in the coming months, it will surely help curb the multiple taxes buyers need to pay in the current scenario. Ultimately, the real success of GST will be transparency and fairness in passing on the benefits to end-customers.

And, we are game for it! About the author:
Dr Prashanth Reddy, Managing Director FunderMax India,
has over 24 years of experience, having spent the 10 years in building materials. He believes in practices, 'When the going gets tough, the tough gets going.'