Tag Archives: RERA

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

24 Friday Nov 2017

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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”?

24 Friday Nov 2017

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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.’’

A RERA Bench in Greater Noida?

24 Friday Nov 2017

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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.

Affordable Houses supply increases by 27% in January – September?

07 Tuesday Nov 2017

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A recent study report of CREDAI, the real estate Developer’s body, revealed that the supply of affordable houses has increased by 27%.  What is the factor that contributed towards this sector of housing?  The answer is that the initiatives of the government, to boost its flagship programme, has lured many developers to offer its services to lower income and middle income group.  Among the new launches, the Mumbai topped the list with a whopping 40% increase in housing supply, followed by Kolkatta and Pune. Mumbai witnessed the highest number of launches, at over 19400 new residential houses until September 2017, out of which affordable housing sector had a share of close to 10000 units registering a rise of 300%, when compared to the previous year. What is the reason for this enhanced growth rate in the affordable housing sector? The key to this is that the implementation of RERA and GST has boosted the confidence of home-buyers, who were swinging in a dilemma to buy a house. The enhanced confidence resulted in many enquiries for the right kind of properties in  which witnessed good traction during the current festive season.  So would we see more developers investing in this sector?

Public interest at the cost of private impairment?

03 Friday Nov 2017

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The Center and State Government of Maharashtra have stressed that a law can be made in public interest to overturn a private contract. Both were defending the new Real Estate (Regulation and Development) Act (RERA) and its provisions against a constitutional challenge from builders who questioned its retroactive application on pending projects under old agreements.

The Government can, contrary to the builders’ plea, make a law which has the effect of changing obligations under an existing contract which seeks  to emphasise that RERA has a ‘retroactive’ application on pending unfinished projects. There is no constitutional guarantee that the terms of a contract will have to maintained. The legislature is empowered to bring in law in public interest that may impair or completely over turn a private contract and its obligations.

The new real estate regulatory law enacted by the Parliament last year came into force on May 1 this year, is facing a constitutional challenge from several builders and the Bombay High Court is tasked to decide on its validity. Home owners have intervened to support the law which provides that a builder is liable to return amounts to flat buyer if possession not granted by the date mentioned in the agreement. The builder may have to return the amount with interest and compensation if the buyer withdraws from the project and also pay interest per month till possession is handed, if the buyer stays on with the project.

Why is the Government hell – bent on supporting the homebuyers rather than the contractors?  The answer is that the larger interest of home buyers is being protected in public interest by RERA, an act which is meant to bring in transparency and accountability for development of real estate sector.What RERA seeks to do when it says that the authority will ensure completion of a project after its registration has been revoked for defaults by its builder promoter, is only to finish his unfinished work, which was his obligation. The rights of the buyers are kept in mind and thereby their interests is of paramount importance.  Does this mean that we would no longer see a diluted RERA anytime in the future?

RERA contains conflicting provisions?

01 Wednesday Nov 2017

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The Bombay high court which is hearing a challenge to constitutional validity of the new Real Estate Regulatory law observed that its “adjudicatory provision should have been more elaborate” to cover various situations that can arise when a builder’s registration is revoked. The Real Estate Regulation and Development Act provides for compensation to a flat purchaser from a builder for delay in possession beyond the date specified in the agreement for sale.

The Counsel appearing for builder said the provision under section 18(1)(a) of RERA which stipulates the compensation that an adjudicatory officer can fix when combined with provisions of the Act was in conflict with another provision under section 4 the Act that mandates a builder to specify the time period by which he will complete a project. He said that a builder may give a new date for possession while registering an ongoing project if the earlier deadline has already expired, but the Act seeks to hold him down to the date mentioned in the agreement made with a buyer.

He also said that when the compensation clause is combined with one where the RERA Authority is allowed to revoke a builder’s registration for lapses and defaults, leaving the builder bereft of any benefits from sale of unsold flats but saddled with any liabilities he may have with banks or other financial institutions, it clearly breaches his fundamental right to carry on trade.

The Division bench heard the submissions wherein the Senior Counsel suggested that the section be modified to supplant the possession deadline to mean any “new timeline” a builder may have submitted while registering an ongoing project. An alternate that could be suggested is that the compensation clause must be “read down” by the court to ensure that only when a builder defaults in meeting the deadline can he be made liable, not in every case of delay which could be for other reasons too.

The Senior Counsel also contended that that “revocation amounts to expropriation” and the project is “confiscated” by the RERA Authority which can then give it to a contractor or association of allottees for completion. But will the project be allowed an extension then? How can the builder then be asked to pay compensation especially when 70 percent of his project fund is already deposited. There could be scenarios where a builder may have taken loans and defaults on them and the property is attached by a bank. “Where shall the earlier promoter go? Where will the money be? Who will disburse,how ?” he observed at the hearing to decide on the validity of various sections of RERA. The Bench also referred to the aim of the Act which is to “regulate the real estate sector”. The question  is whether only the builders were being regulated or the entire scenario.

Are realty prices sinking in Mumbai? Any signs of revival?

29 Sunday Oct 2017

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The Realty Sector in Mumbai is witnessing its worst slump ever, with market rates of properties in several areas, including south Mumbai, dipping below the ready reckoner rates which are values of properties, determined by the government for payment of stamp duty. These rates, published annually, impact the construction cost of projects, as several premiums and charges collected by the civic bodies and the government itself are linked to the ready reckoner values.   According to sources, many prominent developers and industry watchers have stated that never in the history of the city have they witnessed such a phenomenon, even as debt-laden builders, struggling with slow sales, unsold apartments, and delayed/stalled projects, are pulling out all stops to attract buyers.  According to a recent research report, the market rates of residential properties in Colaba (Shahid Bhagat Singh Road) is around Rs 40,000 per sq ft, while the ready reckoner rates for the same properties is at least Rs 10,000 more. Similarly, the market rates of residential properties in Dadar West is around 30,000 per sq ft, whereas the ready reckoner rates in the area are pegged at Rs 40,000 to Rs 45,000 per sq ft. In parts of Powai, the current ready reckoner rate is Rs 27,000 per sq ft while flats are being offered for Rs 25,000 per sq ft or less.  The report further reveals that since 2015 when the market was sluggish but wasn’t facing such complete slump, the ready reckoner rates have gone up by around Rs 2,000 to Rs 5,000 per sq ft in many parts of Mumbai, whereas the market prices have remained the same or worse, dropped by Rs 3,000 to Rs 4,000 per sq ft.   Does this mean that the government  has been increasing ready reckoner rates by around 15% per year and that the market prices have remained flat?  Shouldn’t Ready reckoner  be the true barometer of real estate prices?  How could we treat it as a revenue machine?  The NAREDCO, an autonomous regulatory body affiliated to the Ministry of Housing and Urban Affairs, has affirmed there is a discrepancy between the market prices and the ready reckoner rates, saying the change has come about with the introduction of Real Estate Regulatory Authority (RERA), wherein the carpet area of a property has been defined. Developers are now selling properties at carpet area. As a result, areas such as Colaba, Bandra, Santacruz, and Thane are witnessing higher ready reckoner rates compared to the actual market price.  So is this the chance for the buyers to cash in on opportunity to make investment, particularly when the Developers are offering slew of incentives to them?

Is the time ripe and right for a Real Estate Investment and purchase?

28 Saturday Oct 2017

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The recent research report of a real estate advisory company, in 2016 and the first quarter of 2017, residential projects including townships across the country have attracted an investment of over Rs 26,000 crore. Another research report reveals  that residential properties in the Rs 35 lakh price bracket accounted for the majority of sales in at least four out of seven major Indian cities last year. The report further states that this is  the new era for housing in the Indian real estate sector. It is a reflection of burgeoning buyers’ confidence in the wake of government reforms witnessed in the recent past.  The centre’s focus on affordable housing and rate cuts are meant to encourage primary beneficiaries of the scheme lower income home-buyers.  With RERA in place and GST already making an impact with its national roll out, the gloom, whatsoever, created by demonetisation is gone and the realty sector is showing clear signs of revival.  Does this imply that this is the best time for buying or owning a dream home in India, particularly when the home loan rates are considerably low now and more particularly as the largest public sector bank in India has also reduced its home loan lending rates by 25 basis points, for loans upto Rs 30 lakh, to 8.35 per cent?

Residential Realty Sector on a road to recovery?

24 Tuesday Oct 2017

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Realty stocks climbed as much as 18% on resumption of trading in Mumbai after the Diwali weekend. Kolte-Patil Developers, Sunteck Realty , Puravankara, and Sobha registered fresh 52-week highs, with buyers expected to reward developers that have good completion and delivery records.  Shares of Arihant Superstructures, Ansal Buildwell, DLF, Anant Raj, Godrej Properties and Peninsula Land also rose between 3% and 8%.  What is the reason for the same?  The answer is that with the uncertainty around the implementation of Real Estate (Regulation & Development) Act  is now over, the formation of regulatory authorities in key property markets has helped build confidence among home-buyers.  These factors, combined with low home-loan interest rates and rising affordability of residential units, could stoke a revival in demand in the second half of the year.  The residential realty sector is expected to witness an uptick in residential new sales in the coming quarters across key markets, driven by favourable macros, low interest rates, improving affordability and significant pent-up demand.  Also the interest rate subvention for first-time buyers from the middle income group may incentivise fence-sitters to buy homes. It is also predicted that office space demand would remain strong. Shares of Godrej Properties, Sobha and Kolte-Patil have appreciated between 109% and 219% since the beginning of the year, since the developer’s operating cash flow remains positive.  What about the debt that may increase on account of some land payments?

Realty companies shares “bull” dozes share market?

23 Monday Oct 2017

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The shares of real estate companies were trading higher up by 14% on the Bombay Stock Exchange.  Companies such as Suntech Realty, Shobha, Unitech, Arihant, Arvind Smartspaces, Delta Corporation, Godrej Properties and Puravankara are up from 5% to 14%.  What is the reason towards this sudden surge in stock prices? The answer is that with the onset of RERA and GST, there is  an increase in the consumer confidence, which has thereby led to an improvement in the market sentiments.  The realty sector, on the whole is heading towards consolidation, whereby the credible players would gain ground and the unorganised players would be eliminated.  Haven’t we recently reported uncertainties in the realty sector due to the implementation of RERA and GST?  Has this been sorted out?  The answer is that the uncertainty appear to have largely settled,  despite the near term sluggishness, but the same might not have a long term impact on the realty sector as there would be an uptick in residential new sales in ensuing quarters across key markets, which inturn is driven by various factors such as favourable macros, low interest rates, improving affordability and significant pent up demand in the system.  Does the interest rate subvention for the first time buyers from middle income group incentivise the fence sitters to make purchases?     Would the office space demand remain robust, given that there is rising rental and low vacancy?