GST ups demand for ready-to-move-in properties?

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Builders are seeing a surge in demand for ready-to-move-in properties because such apartments with occupancy certificates are not within the ambit of Goods and Services Tax, which has raised overall taxes on property.

An under-construction project attracts a flat GST rate of 12%. In the pre-GST era, the total tax — including VAT, service tax, Swachh Bharat cess and Krishi Kalyan cess — roughly worked out to 9% of the total sale value (cost of land and construction).

According to a recent report, for ready-to-move-in properties, customers need to pay only the registration and stamp duty charges over the sale value. “Queries for ready-to-move-in properties 12 months ago comprised roughly 25% of the overall enquiries, but only 16% of the overall sales. Now, the figure has increased to 25% of the overall monthly moving average sales.  The Buyers who had postponed their decisions in the run-up to GST and the Real Estate Regulation Act (RERA) have returned to the market. The builder has set up a dedicated team to sell ready-to-move-in projects. Usually, ready-to-move-in as an asset class constitutes a small portion of the total revenue for developers as 75%-80% of a project gets sold between launch and completion.

Experts believe that restricted supply of fresh projects after the implementation of RERA has also contributed to the growth in demand for ready-to-move-in houses. Builders are stuck with old inventory and are keen to sell it off before launching new projects.
Under RERA, many developers may move to a format where they would complete the project and then come to market to sell it, in order to minimize risks.

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MAHA RERA to redefine “co – promoter”?

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The Maharashtra Real Estate Regulatory Authority  is set to issue a fresh order on the use of the word “co-promoter” in its rules within three weeks.  The new set of rules will see Maha RERA use another word as per the Real Estate (Regulation and Development) Act, 2016. It will not use the word “co-promoter” and make the land owner liable only if he/she has shares in a project.  If the land owners get area shares or flats in lieu of money, they will be held liable as they would be selling the units. But if they are not involved in the project, there is no question of any liability.  As the word “co-promoter” is not in the statute, Maha RERA would have to issue a fresh order stating the new word to be used for the land owners with shares in properties and those who do not, the official added.

What led the Maharashtra Government to implement this step?

Maha RERA had withdrawn its order making land owners equally liable as that of builders and developers as part of the Act and it was submitted as an affidavit in the Bombay high court (HC) last week.

In the petition filed before the Bombay High Court, the validity of the Order was primarily challenged on the ground that Maha RERA was not empowered to introduce any such new term. “The impugned office order is tantamount to legislation,” the petition stated. The respondent (MahaRERA) cannot legislate for the state, much less for the Union.

Could the land owner or the society be held responsible along with the developer. It is good that Maha RERA has withdrawn its earlier order on the issue of co-promoter being liable. The wrong has been corrected.’’

Restaurants seek input tax credit on Rents?

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Restaurants, which lost input tax credits when the goods and services tax was reduced for eateries, want the benefit restored for a major expense component i.e. rent.

A little over a week after GST was slashed to 5% for cafes and diners, restaurant associations have planned to approach the finance ministry to seek input tax credit on rent. They said rent is a critical fixed cost, especially for outlets operating in prime locations in metros and at airports.

The GST Council recommended earlier this month that GST for restaurants be cut to 5% with no input tax credit from 18% previously with input credit. However, eating out didn’t become cheaper in many cases because some restaurants increased the base price of items to offset the credit loss.    The National Restaurant Association of India plans to send representations to the finance ministry on this matter.

Restaurants were denied input credit after it was found that they had not passed on the benefits to customers. Tax officials have sought details about menu prices before and after the GST rate cut, which was effective November 15. The move followed reports of some chains raising prices. The government is keen to ensure the benefit of GST reduction is passed on to consumers.  Many restaurants and lounges that operate in airports pay steep rents, which are converted to licence fees.

Any other business also gets input credit on these expenditures. Why should restaurants be differentiated?

Maharashtra to pay 5 times for agricultural & non-rural land?

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In a decision that is likely to speed up acquisition of land for infrastructure projects in Maharashtra, the state government has cleared a move that would see agricultural land and land in no-development zone in non-rural areas fetch five times the market value.

The decision, according to sources would help in acquisition of land for big ticket infrastructure projects such as the Rs 46,000-crore Mumbai-Nagpur super expressway and other projects in the state.

Government officials said the file suggesting a hike in compensation was put up by Maharashtra State Road Development Corporation as people in non-rural areas were demanding the same amount of compensation (five times) that the state currently gives for acquiring land in rural areas.

However, in places such as Nagpur and metropolitan region Kalyan and other areas which have a development plan but are not under any municipal limit, the current compensation for land is only 3.75 times of the ready reckoner rate or rate of the last purchase, whichever is higher, which inturn led to a difficulty in acquiring land for projects such as the Nagpur-Mumbai expressway as those who owned the land asked why the government was paying them less than what people in rural areas get.

The state government gives a compensation five times of the land value to those who willingly (negotiated purchase) hand over their land to the state.

However, the increased compensation will not be applicable for land within municipal council and municipal corporation limits.

Officials hope that the new move by the state government would give a fresh impetus to land acquisition for the Mumbai-Nagpur expressway project.

The state wants to acquire 10,000 hectares of land for the project but has struggled to secure consent of landowners on the route. It wanted to start construction on the route by December. However, it has now pushed the deadline to January 2018 as land acquisition is still not complete.

 

A RERA Bench in Greater Noida?

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The Noida Extension Flat Owners Welfare Association (NEFOWA) ,a Noida based Welfare Association for homebuyers, have demanded that the Tribunal should set up a bench in Greater Noida to be more accessible to homebuyers, since the Uttar Pradesh Real Estate Regulatory Authority (UP RERA) has been functioning out of Lucknow for the last four months.

The members state that at least 30,000 complaints for various builder projects have been made from Noida and Greater Noida so far but the outreach of RERA to more buyers could only increase if the distance is bridged between the court and the buyers.

For each complaint, the hearing is being scheduled at least twice or thrice if not more. For the buyers who have complained, this entails that they visit Lucknow a many times the hearing is scheduled. Most hearings are during weekdays so people have to take leave from work to attend these. Because Noida and Greater Noida are construction heavy sites, at least a bench of the Tribunal should be located here.

RERA has been constituted to protect the interests of the buyers, so primarily it shouldn’t it be accessible? So far almost 80% RERA Complaints are being made from Noida and Greater Noida as these two cities have the highest concentration of new apartments.

Home size hike under PMAY to help clear inventory thereby revive housing demand ?

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Would the government’s decision to increase the home size for middle income group (MIG) under the credit linked subsidy scheme help in clearing unsold stock and reviving demand in the realty sector?

A day before, the Ministry of Housing and Urban Development approved  increasing the carpet area in the MIG-I category of CLSS from the existing 90 square metre to up to 120 square metre and increasing the carpet area in respect of MIG II category of CLSS from the existing 110 square metre to up to 150 square metre. The changes are effective from January 1, 2017.

According to builders’ body National Real Estate Development Council (NAREDCO), this move would bring the entire demand for affordable housing under the interest subvention scheme, accounting for almost 96% of the total demand for housing in the country.

Confederation of Real Estate Developers’ Associations of India (CREDAI), another Developer’s body feels the average middle class in smaller towns and cities would now be able to afford bigger and better quality homes than before.

The increase in threshold limit would not only enable the middle income group buyers to avail interest rate subvention under CLSS, but  also dilute the impact for the lower strata of the society with lower ticket size and that the subsidies might be more effective, if restricted to EWS/LIG segment in the interest of inclusive goal of housing for all.

Prime minister on December 31 last year had announced the CLSS under the Housing for All 2022 (Urban) for people belonging to the MIG category, valid till the end of December this year. However, the government last month extended the validity of interest subsidy benefit by 15 more months till March 2019.

According to a leading Real Estate Finance Company, the fence sitters specially, who were delaying their home purchase, would now be given a further push.

Builders, meanwhile, would not only enjoy the general uptick in the market that, but would also accelerate the sale of housing units which were earlier missing out on a sizeable portion of the Middle Income Group audience.

Would this decision of government beside helping in clearing unsold stock, also encourage developers to launch new projects?

Dena Bank to offer cheapest home loan at 8.25% ?

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The Delhi based state owned lender Dena today announced to offer home loan at 8.25%, leaving behind industry leader SBI in terms of the cheapest loan rate offered by any player.

The country’s largest lender State Bank of India (SBI) in early November announced to give home loans at 8.3%, which was the lowest rate being offered by any bank so far.

Dena Bank’s offer is a part of the retail loan carnival that begins tomorrow and stretches until the end of this calender year.  The ‘Dena Retail Loan Carnival’ promises offer loans in the range of 8.25% – 9%from November 16, 2017 to December 31, 2017.

The bank said the carnival is being launched to promote housing and vehicle loans.  It would provide home loans up to Rs 75 lakh at 8.25% p.a. and car loans at 9% p.a..However, women borrowers would be offered car loans at 8.90 per cent.

Dena Bank said it would not charge any processing or documentation fee on the loans that will be processed during the carnival. Customers could contact any branch of Dena Bank for availing the loans, it said in a statement.

Would more Banks come up with such offers?

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Companies expect office space demand to decrease on advances in technology

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Companies expect overall office space demand to decrease as technology brings in better utilisation of space and reduction in headcount, according to a survey by a leading commercial property consultant. However, they see demand for high quality office space to increase in the near future.

Technology is enabling a more mobile workforce and requiring companies to build more agility into their headcount planning. As better space utilization, and weaker front and back office headcount growth will reduce overall demand for office space, landlords must act now to ensure they remain competitive.

Real Estate Developers are, however, more confident about the outlook for office space demand, as they anticipate stronger aggregate demand driven by new startups and emerging industries.

Companies across the Asia Pacific region are placing employee experience at the center of major real estate decisions due to advances in technology, rather than relying on just good location, according to the survey.

According to the survey, whilst location would remain important, the changing order of real estate would require buildings and work spaces to be far more flexible and adaptable than before.

According to the report, it is expected that the headcounts in the information technology space would increase and more multinationals are likely use co-working spaces and incubation centers to improve their access to IT talent and innovative ideas.

Would this increase the value of the commercial properties?  Would more developers opt for leasing rather than selling?

Builders focus more on leasing than selling?

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Real Estate developers building commercial properties, including office blocks and retail malls, are increasingly looking to lease their properties than selling them on outright basis or monetising them through lease rental discounting (LRDs), given the imminent opening up of REIT market in India.

The possibility of better valuation and control through this new option of liquidating their commercial assets is holding back even developers, which have so far stuck to the strategy of either complete or strata monetisation, from selling properties on an outright basis. The office market has been growing steadily since the past few years and we expect the trend to continue. In such times, rental yielding asset owners might want to hold their properties and enjoy better valuations and also list them through REIT rather than monetise them at a go.

However, the launch of the first REIT seems to be at least 2-3 quarters away and the success of initial REITs will decide the fate of this market in India. Realty developers who also used lease rental discounting to monetise their commercial assets along with outright model are now keen to create a portfolio that can be listed under a REIT.

The entire project, including retail and some residential component, is estimated to be completed in the next two years.

Some builders that used to sell offices on outright basis earlier have trimmed their portfolio that is being sold now on expectations of better valuation through REITs later.

In the backdrop of an ongoing transformation in business environment, Indian real estate, especially commercial real estate, is witnessing a robust rise in investment inflow as both foreign and domestic institutional investors are infusing more funds into the sector. Large global institutional investors, including Blackstone Group, Brookfield Asset Management, GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority, have already been investing aggressively in this segment over the past few years.

Listing of leased commercial realty portfolios under the real estate investment trusts would provide the liquidity option to these investors in the future.

In addition to this, more funds are eyeing investment and alliance opportunities in the backdrop of recent policy reforms.

While these entities had earlier shown interest in investing in commercial real estate, are they also looking at other realty segments such as residential, retail and hospitality?

CLSS could be availed by MIG?

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CLSS or Credit Link Subsidy Scheme was launched by the Ministry of Housing and Urban Development under the Housing for All 2022 Scheme, on 22nd March 2017, for the Middle Income Group, to provide them with subsidy wherein the equated monthly instalments of the homebuyers would be brought down on housing loans availed by the buyers in urban areas.  Now in a bid to further simplify the process, the government has now approved increasing the carpet area in the MIG I category of CLSS from the existing 90 square metre to up to 120 square metre and increasing the carpet area in respect of MIG II category of CLSS from the existing 110 square metre to up to 150 square metre.  These changes are effective from 1st January 2017. The government expects the increase in carpet area to enable the middle income category of individuals to have a wider choice in developers’ projects.  The Government also stated that the increased carpet area would also give a boost to the sale of ready built flats in the affordable housing segment.  Carpet area is the area enclosed within the walls, and is the actual area to lay the carpet. This area does not include the thickness of the inner walls. It is the actual used area of an apartment.  Would this have more takers?