RERA & GST
Impact on Indian Real Estate sector
RERA Real Estate Regulatory Act Effective in the country from 1st May, 2017, RERA is an Act of the Parliament of India which seeks to protect home-buyers as well as help boost investments in the real estate industry.
GST Goods and Services Tax In action from 1st July, 2017, GST is an indirect tax applicable throughout India which replaced multiple cascading taxes levied by the central and state governments.
Impact of RERA on Home Buyers
- Buyers will be safe from the uncertainties of prelaunch projects and unrealistic advertisements
- They can be assured of project’s clearance & approvals.
- Buyers who are investors & used to buy at prelaunch stage, will not have the same leverage of low pricing.
- On possession, customers will get exactly what they are offered or promised by builders at the time of buying the property.
- On possession, customers will get exactly what they are offered or promised by builders at the time of buying the property.
- Projects with RERA registration numbers will enable buyers to track all crucial detail of projects, before making any decision.
- Buyers will be safeguarded from fraudulent builders & agents.
- They will be aware and know about all the accountable entities which are involved in project development.
- RERA will enable customer to be selective while choosing the right party to deal with, based on the track records of builders & brokers available on their website.
- Buyers can be more assured about a project’s timely delivery.
- Buyers can feel more secure and safe about their money being put in an escrow account.
- They may receive money, if claimed, for return in case any rule is violated by the builder.
- Prices are bound to increase as, the additional cost borne by builders will eventually be transferred to the end customers.
- Now, buyers cannot be cheated easily with size manipulation based on superarea and they will be liable to pay on the basis of net usable area.
- Buyer can be ensured of better construction quality.
- Buyers may feel more empowered as builder can’t make any alterations easily in common areas of projects or in individual units.
- They may face hurdles within buyer groups sometimes, for necessary structural changes due to the requirement of the consent of two-third buyers.
Impact of GST on Home Buyers
- A simple and transparent tax applied on the purchase price is the biggest boon to home buyers.
- The revised GST will not be imposed on already constructed properties, where completion certificate has been issued by concerned authority.
- Since GST is actually expected to bring down the project cost this means that homes would be cheaper.
- Under the GST regime all the under-construction properties will be charged only 12%, excluding stamp duty and registration charges. This will not applied to completed and ready to move in projects as there are no indirect taxes applicable in such properties.
- VAT with different rates from state to state and Service Tax accounted for 7-9% for residential properties, which is now lower at 3-4% with GST.
- Water bill will attract GST at a concessional rate while power bill will not attract any tax.
- The implementation of GST makes the calculation much simpler, since the buyer has to pay only a single Goods & Service Tax.
RERA Real Estate Regulatory Act Effective in the country from 1st May, 2017, RERA is an Act of the Parliament of India which seeks to protect home-buyers as well as help boost investments in the real estate industry.
GST Goods and Services Tax In action from 1st July, 2017, GST is an indirect tax applicable throughout India which replaced multiple cascading taxes levied by the central and state governments.
Impact of RERA on Home Developers
- No pre-launches, so it will be difficult to get initial running capital. Only financially strong builders can survive.
- Builders may postpone or pause new launches.
- They may face more hurdles & additional cost for multiple clearance, which may also cause unwanted delay in project launches.
- Now, builders will be discreet while marketing or advertising projects through different sources.
- Builders may revoke ongoing marketing campaigns or advertisements for existing under construction projects, and then re-initiate the marketing according to RERA guidelines.
- Less competitive market as well as small pocket builders may be wiped out of the market.
- They may face the unnecessary complexity of multiple Government windows.
- There will be better control on pricing of projects for big builders, as very few small builders may exist with lesser small projects.
- It would be difficult for a new entrant with feeble financials to penetrate the market.
- An overall accountability of all participating entities may arise and the game of passing the buck may stop.
- Builders may feel a liquidity crunch for unaccounted expenses, mostly incurred at the initial stage of project launch.
- There might be a hazard in maintaining multiple escrow accounts and getting these accounts audited frequently. It might cause additional cost to builders.
- They will not be able to re-route money received for one project to another project.
- Their asset allocation for marketing and advertisement activities may be squeezed.
- Financially indiscipline builders may deteriorate or become extinct.
- The carpet area rule may impact builder’s project planning. It may lead to smaller common areas in projects, to encounter price parity with competitors.
- Now, builders will be prudent and plan projects properly before launching with no liberty or added complications to make any structural changes later.
- Builders may endure redundant costs due to focus and obligation of quality construction.
- Builders may be in a hurry to try and finish projects which are near completion, before 31st July 2017.
Impact of GST on Home Developers
- Since GST is actually expected to bring down the project cost this means that homes would becpme cheaper.
- GST will roll Customs Duty, Central Sales, Excise Duty, Entry Tax etc. into one, bringing cost of construction down, which will bring more liquidity in the market and boost home sales. Free flow of credit of developers will also translate into an increase in margin in their hands.
- Tax on construction materials have decreased from 20% - 25% to 12% - 18%, reducing cost of production.
- For developers the actual tax effect will be lower than the existing one mainly due to the input tax credits and elimination of all other taxes.
- The tax regime on Steel, Paint, Cement, has been standardized and rates have been fixed.
RERA Real Estate Regulatory Act Effective in the country from 1st May, 2017, RERA is an Act of the Parliament of India which seeks to protect home-buyers as well as help boost investments in the real estate industry.
Impact of RERA on Home Agents
- Limited projects and inventory to sell as they will be obliged to sell only registered properties.
- On a positive side, broker & buyer trust deficits will be reduced. Now, brokers can be reasonably sure that commitments made by builders are reliable. Although, they have no direct control & cannot ensure that builders stick to their timelines or promises.
- Inadvertently or with intent, they will refrain from making any deceitful commitment to home buyers.
- Now, brokers can be well informed about projects & builder details, available on RERA Website. Brokers will avoid picking flawed builder’s projects to sell or offer to buyers. It will save them from becoming the scapegoat.
- Agents may face the unnecessary complexity of multiple Government authorities clearance and licensing.
- Many small, one time or unorganised agents may be wiped out
- More professional and large players to enter and exist in the Market
- Many agents may face dearth in their product portfolio, as builders may mention or appoint only limited agents with RERA, to sell their projects.
- Most of transactions which were unnoticed before, will come under ambit of law.
- They might see a decline in the cash inflow with lesser opportunities to get unaccounted money, which they used to get earlier from both sided, i.e., buyers & sellers.
- Rules may evolve the Indian real estate broking business into behaving and operating in a more professional way.
- We might see better code of conduct in day to day business practices.
- A better ecosystem will be built between buyers & brokers, due to accountability of builders for quality construction, transparency on usable units sizes & constrain for misuse of the FAR .
- Brokers can sell or offer projects with more conviction & confidence to the buyers, being reasonably sure about builder commitments and promises for the projects.
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