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New Government Laws / Regulations in Indian Real Estate Sectors & Investment

The real estate sector is continuously in the news this year, with Government of India announcing various new policies and initiatives to help organize the industry and help it grow diversely.  Real Estate (Regulation and Development) Act 2016 and the amendment to the Benami Transactions Act were announced but most talked about was demonetisation of INR 500 and INR 1000 currency note, which had an impact on real estate transactions.

In the year 2016 and 2017, there were few important policy decisions government announced as below:

  1. The Real Estate (Regulation and Development) Act, 2016

RERA is implemented protect the interest of home-buyers as well as help boost investments in the real estate industry. The act came into force on May 1st 2017. It is mandatory to register all the commercial and residential real estate projects with RERA where the land is over 500 square metres, or eight apartments. This will bring greater transparency in marketing of the project and its execution as home-buyer or investors will be able to check all the project related nitty-gritties. Real estate developers in Mumbai are welcoming this Act as will it make sector healthier.

  1. Goods and Services Tax (GST)

The GST will merge host of indirect taxes and streamline accesses. While there may be a rise in taxes at the final stage, but availability of credits on input taxes will not let the real burden increase. Although several goods connected to the real estate industry are falling under the 18% and 28% slab. A lot, therefore, will depend on the proper implementation and a proper system of claiming tax credits. GST will also likely to boost foreign investment and benefit the NRI community for investment real estate because of a seamless all-inclusive channel available.

  1. Benami Transactions (Prohibition) Amended Act, 2016

Though the Benami Transactions (Prohibition) Act, 1988 has been on the law book since more than 28 years, but only in the year 2016 the act came into effect with stringent rules and penalties associated with dealings related to ‘benami’ property transactions.The law now empowers specific authorities to confiscate disputed benami properties and deals with disputes arising from such dealings. With strict rules and penalties, the investors’ participation is set to increase as it clears out the way for authorised business.

  1. Foreign direct investment

According to the report 2017 compiled by fDi Intelligence, a division of The Financial Times Ltd. India is still a most popular FDI destination attracting $62.3 bn investment in 809 projects in 2016. India is ahead of China and US. Structural reforms and the more liberalised foreign direct investment (FDI) regime will increased transparency bringing higher investments into real estate sector. 100% FDI permitted through the automatic route for townships, cities will only help sector grow, resulting into economic growth of the country.

  1. Affordable Housing

India is currently facing massive urban housing shortage. To tackle this, government of Indiahave taken a major initiative – ‘Housing for All by 2022’. This initiative focuses on affordable/low-cost housing. Credit-linked subsidy, subsidy for beneficiary-led individual house construction, PPP, besides slum rehabilitation are few key factors in it. A special provision of Rs 4,000 crore is made for National Housing Bank. Hundred per cent service tax exemption is provided for affordable housing developers along with 100% tax deduction in profits for affordable housing construction. Affordable housing has given infrastructure status, which will control the urban housing shortage of estimated 18.8 Million dwelling units and 47.4 Million units in rural India.This move will attract better investments in the sector. Real estate projects in Mumbai will get boost with it. Buying a house in city with less than one crore is not possible right now, but with affordable housing projects it will be possible.

  1. REITs (Real Estate Investment Trusts) – DDT exemption for SPVs to REITs

The introduction of REITs (Real Estate Investment Trusts) will provide platform for all kind of investors, even with smaller budgets. Through REITInvestors can make safe and worthwhile investment into Indian real estate market. The best part is, investors can start with as small as Rs. 2 lakh to secure their units in exchange. The money collected from the REIT funds will subsequently be invested in commercial properties to generate income.

  1. Interest subsidy for first-time homebuyers

To encourage first time home buyer, the union budget of 2016-17, for houses with a value not exceeding Rs 50 lakh, and loans of up to Rs 35 lakh sanctioned during the next financial year, deduction of additional interest of Rs 50,000 per annumfor first-time home buyers is introduced. This proposition will positively influence home sales in non-metros where residential product prices are not high as in the metros.

  1. Change in arbitration norms for construction companies

To support real estate industry, government has cleared few policies like speedier resolution of disputes and the release of 75% of amounts that are stuck in arbitration. This was done to improve cash flow of large developers who have substantial exposure in infrastructure and government contracts. This will help in fast execution of large infrastructure projects.

  1. Currency demonetisation of 500 and 1,000 rupee notes

Demonatisation of 500 and 1,000 rupee currency note was the most significant and unexpected announcement, which shook the entire India. This move along with RERA act will bring in much needed transparency in the real estate sector, bringing healthy environment to it. The international standards of business and strict regulator will help sector grow and attract more foreign investors.

  1. Permanent Residency Status for foreign investors

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

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