Lower interest rates – Bringing one closer to their dream home

Home loan interest rates are reduced

High-interest rates and a slowing economy led most end users of property to reconsider their purchase decisions in the recent years. Further, 2016 saw the government delivering a ‘triple whammy’, comprising of the introduction of the Real Estate (Regulation and Development) Act, the Goods and Services Tax (GST) and the demonetization initiative. However, the year 2017 has seen some welcome moves that indicate things are looking up in this sector. Moreover, all the three measures listed above will create a much transparent economy, foster its long-term prospects and create more employment, pushing up demand for quality housing.

With the demonetization drive coming to an end, banks and lending institutions have seen a massive accumulation of liquidity, building expectations around a sharp fall in lending rates. Around the start of the year, India’s largest lender, the State Bank of India (SBI), has taken the initiative to cut its marginal cost of lending by 90 basis points and home loan interest rates by 45-50 basis points. It was soon followed by other biggies, such as PNB, ICICI, and HDFC. Such rates were last available 6 years ago, post which both real estate demand and capital values appreciated. For an end user, this represents a very good opportunity to purchase one’s dream home now. The reasons for this are not hard to see:

Lower interest rates = Lower EMIs

Lower interest rates means lower EMIs to be paid by home buyers
Lower interest rates mean lower EMIs to be paid by home buyers

Most end users are professionals and avail home loans to buy their homes. Therefore, a significant reduction in home loan interest rates translates into lower payouts against the mortgage. For example, if one is looking to purchase an apartment for a high-end project and avails a loan of Rs. 1 crore for the purpose. Assuming loan tenure of 20 years (240 months), the savings on equated monthly installment (EMI) under the applicable rate of 8.25% would come to Rs. 13.80 lakh approximately over life of the loan. Rs. 20.70 lakh approximately accrue as savings for one who goes for a loan of Rs. 1.50 crore in the same period (assuming the floating rate of interest remains the same). The table below further elaborates the numbers:

A hypothetical housing project having a starting price of Rs. 1.30 Crs.

IMPACT ON EMI

Loan amount in Cr. EMI at 9.15% New EMI at 8.25%  Saving in EMI (Rs.) Net Saving (Rs.)
1 90,940 85,207 5,733 13,75,920
1.5 1,36,409 1,27,810 8,599 20,63,760
1.75 1,59,144 1,49,111 10,033 24,07,920

 

Another hypothetical project, offering homes starting at: Rs. 4.2 Crs.

IMPACT ON EMI

Loan amount in Cr. EMI at 9.15% New EMI at 8.25%  Saving in EMI (Rs.) Net Saving (Rs.)
3 2,72,819 2,55,620 17,199 41,27,760
4 3,63,758 3,40,826 22,932 55,03,680
5 4,54,698 4,26,033 28,665 68,79,600

*Loan tenure = 240 months, i.e. 20 years

In addition, with banks having surplus liquidity and the benign inflation rate prevailing in the economy, interest rates may well come down further. As discussed earlier lower rates will further boost demand for housing which will push up property prices in due course.

Cuts in taxation

The Union Budget 2017 saw a reduction in income tax rates doing the rounds. Also, tax breaks and lower interest rates have been provided for the affordable housing sector. End users, hence, will have greater purchasing power and this should greatly boost economic growth. Higher incomes also mean higher needs for investments and real estate is a favored asset class for investors. Thus, the home that one wishes to purchase may not be available at these prices in coming time since it is likely to become expensive when demand revives.

Higher investment in infrastructure

During the demonetization drive, numerous government departments at various levels, which were allowed to collect their dues in the form of discontinued bank notes, have seen their hitherto empty coffers overflowing. A major chunk of these massive funds is expected to be invested in enhancing the infrastructure of towns and cities, in order to drive growth. Faster development of upcoming real estate hotspots along the further reaches of major cities such as Wagholi in Pune, Nallagandla in Hyderabad and Dwarka Expressway in Gurgaon will translate into higher property prices for the same area in the future.

Availability of Quality housing

Lowering interest rates on home loans makes purchasing a home cheaper
Lowering interest rates on home loans makes purchasing a home cheaper

The twin strikes of the RERA Act and demonetization have clearly emphasized the need for end users to go for projects by reputed developers. It is more important than ever to look for a property having a developer, who has built a strong track record for timely delivery and quality. These regulatory moves are expected to clear fly by night operators from the real estate sector, with only the serious players expanding their presence. Hence, the oversupply, leading to excess unsold inventory in the hands of developers, one sees today is unlikely to last long, which will again lead to a hike in property prices. Hence, for an end user, now is a great time to get better quality homes at a more suitable rate.

Primary market to do better than secondary

It was often found that secondary sales in residences used to be conducted through a mix of black money and legitimate funds. With demonetization, the former is no more in availability, hence hurting demand in the secondary market. Thus, end users who primarily dealt with legitimate funds are unlikely to see much supply in the secondary market. This will result in them flocking to primary market i.e. under construction projects of reliable developers, hence pushing up demand for it.

Conclusion

There is a famous English saying, “Strike when the iron is hot”. For an end user, events in the recent past and the possibilities in the near future clearly indicate that this is among the best times for one to take the plunge and purchase the home they have long desired, at a price which suits them. A combination of a crackdown on unscrupulous operators and transactions, more customer-friendly regulations, and financial incentives is a welcome indicator for home buyers to step in and make the purchase they were compelled to defer till recently.

Conversations with INCOR Group – What Does RERA Act Mean For Home Buyer – Part 2

Continuing our ‘Conversations with INCOR Group’ series, this is the second part of the questions a prospective real estate customer may have regarding the Real Estate (Regulations and Development) Act, 2016.

Q7. I am planning to purchase an apartment in Phase 3 of a project, of which Phase 1 is complete and Phase 2 is underway. Do the original plans and timelines submitted by the developer hold true for Phase 3?

A. It depends on whether the developer registered the entire property at one go with the Real Estate Regulatory Authority (RERA) or is registering phase wise. In case of the former, the developer cannot change his original plans and/or timelines for Phase 3 without consent of 2/3rd customers of this phase, as well as RERA’s approval.

However, it is most likely that developers will go in for the latter approach, wherein they shall register each phase separately with RERA as a new project. Doing so provides the developers flexibility as well as a hedge against any unforeseen situations at the time of beginning a major multi-phase project, often spanning multiple years. Though this increases the cost of compliance for a developer, its benefits to them outweigh this increase in cost. Large, integrated townships too are likely to see its developers take the same approach.

Q8. The developer, from whom I purchased my unit, has sold it to another developer, with plenty of work still remaining to be done on the project. As a customer, what are my rights?

A. The Act has considered such a scenario where the developer is unable to complete the project and sells it to another developer or consortium midway. Post the Act, the developer cannot take such a decision, without the consent of at least 2/3rd of the project’s customers as well as approval from RERA. Again, should a customer own multiple units, he/she would be considered as a single customer only and will not have any additional voice compared to a single unit owner. The new developer would inherit all the rights, responsibilities and timelines mentioned in the agreement by the original developer and would need to register accordingly with RERA.

Q9. I am planning to purchase an apartment in an upcoming project. I am, however, apprehensive about the quality of construction of the apartment and do not wish to pay for major repairs 2-3 years down the line due to poor quality. Is there any recourse for me?

A. A major feature of the Act is the formulation of a defect liability clause, which states that the developers of all projects covered under RERA are liable for fixing any issues related to the construction of their project for a 5 year period, post-handover. This is good news for both customers and developers. Customers get an assurance that developers will use good quality materials and techniques for construction, hence, ensuring they won’t have to spend a fortune later on for repairs. For developers, this can serve as a key differentiator, helping them attract more customers while driving unscrupulous players out at the same time.

It is likely that apartment prices will increase, as a result of this clause. Customers should look at this increase as an insurance or warranty payment being made to keep their home looking as great as it was when they took possession.

Q10. I am considering purchasing an apartment in an under-construction project in Hyderabad, while my cousin is planning to make a purchase in an upcoming project in Bangalore. Does the same Act and its provisions apply to both our properties?

A. No. Real estate is a state subject under the Constitution and each state will have to, based on its own needs and circumstances, come out with their own version of the central Act. It’s this state version, which will be applicable to all projects within the state’s boundaries. Similarly, the Union Territories of Delhi and Puducherry, which have their own state governments, also need to come out with their own version of the Act, while the remaining Union Territories have to adhere to the central Act.

The central Act lays down a set of guidelines, which states are free to modify. At the same time, the state governments are expected to adhere to the broad essence of the central Act and not tinker with the same. However, one needs to wait for the states to come up with their Acts to assess the impact of the same.

Q11. I am planning to sell my apartment to another buyer. Will the Act apply to this resale transaction and if so, must I too quote the carpet area of the apartment?

A. The secondary (resale) market is out of scope of the Act, which primarily deals with transactions between developers and customers. At the same time, the implications of the Act are far-reaching, prescribing changes to certain existing practices in the sector. Keeping in mind that post-implementation of the Act, all primary transactions are to be sold on the basis of the carpet area, it is quite likely that resale transactions will follow the same practice.

Q12. While purchasing an apartment, the developer has, apart from the basic sales price of the apartment itself, separately charged me for the amenities provided such as the parking, clubhouse etc. which all adds up to the final overall cost for me. Does the Act have any stipulation in this regard?

A. The Act is silent on how such infrastructure facilities (both internal and external) should be charged by the builder. The Act only mentions that the Basic Sales Price (BSP) shall be based on the Carpet Area, instead of the Saleable Area. Hence, one can assume that the infrastructure charges will continue to be part of the overall project cost to be paid by the customer, rather than the BSP. However, one must wait for the respective state’s version of the Act, before coming to a definitive conclusion on this point.

Conclusion

This is a good time to be a home buyer. The Real Estate (Regulations and Development) Act has come up with a number of provisions, which benefit both customers and reputed developers and along with demonetization, should push the fly by night operators out of business. Add to this, the recent reduction in home loan rates by major banks and housing finance companies offers a great financial incentive for home buyers.

Considering the increasing demand for quality housing, the upcoming implementation of the Goods and Services Tax (GST) on 1st July 2017 and the inflation in the economy, home prices are likely to rise in the near future. For a home buyer, this is as good an opportunity as any to go in for their dream home, which they will get with an assurance of quality and at a good rate, provided the right opportunity presents itself.

Know RERA ACT

RERA Act 2016

Know RERA ACT

The Real Estate (Regulations and Development) Act, popularly referred to as the RERA Act of 2016, is said to bring about a sense of clarity and order to the Indian Real Estate sector. The Act has defined a set of stringent norms for the real estate developer, the intermediary, as well as the consumer. There is conflict among how people perceive the impact of the RERA ACT – some are concerned about the likely increase in cost of construction and compliance, while others are optimistic about the results of the Act. In order to help you form your own opinion on the topic, we give you a simplified version of what you need to know about the RERA Act, and how it affects you. Watch our video on the RERA Act for a quick overview.

How Blockchain Will Transform the Indian Real Estate Sector

Last updated on March 20, 2019 by Subhasish Das

In June 2018, an E. Coli (bacteria, usually harmless) outbreak across the US, from consuming romaine lettuce sourced by Walmart, resulted in the death of 5 people. The Food and Safety Department found out the reason behind the outbreak in 7 days. However, using blockchain technology, Walmart was able to do this research in 2.2 seconds, which substantially reduces the likelihood of infected food reaching the consumer. Walmart is collaborating with IBM Food Trust Solution to test a blockchain-based food supply management tool that will help Walmart keep track of information of every single leafy green vegetable that it acquires or sells. Thus, the retailing giant can trace the final product back to the specific farm it came from, suppliers it went through, the store it was sold from; ensuring every aspect of the product is traceable. Blockchain is an incorruptible global ledger system that provides a way to record …

How Blockchain Will Transform the Indian Real Estate Sector

In June 2018, an E. Coli (bacteria, usually harmless) outbreak across the US, from consuming romaine lettuce sourced by Walmart, resulted in the death of 5 people. The Food and Safety Department found out the reason behind the outbreak in 7 days. However, using blockchain technology, Walmart was able to do this research in 2.2 seconds, which substantially reduces the likelihood of infected food reaching the consumer.

Walmart is collaborating with IBM Food Trust Solution to test a blockchain-based food supply management tool that will help Walmart keep track of information of every single leafy green vegetable that it acquires or sells. Thus, the retailing giant can trace the final product back to the specific farm it came from, suppliers it went through, the store it was sold from; ensuring every aspect of the product is traceable.

Blockchain is an incorruptible global ledger system that provides a way to record and transfer data, such that it is transparent, auditable, safe, fast and invulnerable to outages. These qualities enhance its appeal as a technology that can potentially disrupt a lot of industries and change the underlying way they function, transact, store information, deal with data, and transparency among other things.

Besides food supply management, blockchain is being tested and even trialled in industries as diverse as medicine, law, real estate, banking and airports. A recent research by PwC on blockchain revealed that about 84% respondents (600 executives of companies from 15 territories) are actively involved with developing blockchain related solutions, suggesting the popularity of the technology in the industry.

Blockchain in Real Estate

The processes in the real estate sector are archaic, extremely time consuming, paper-based, outdated, and heavily reliant on intermediaries at various stages, all of which makes it highly susceptible to fraudulent activities. Blockchain can potentially change this on a very fundamental level. It will ease the process, thereby, transforming the real estate sector into a more fluid entity. The potential benefits of applications of blockchain in the Indian real estate sector can foster trust-based transactions that are fast, transparent and binding. Here’s a look at different aspects of real estate, that blockchain technology can impact positively.

Blockchain article on HTEstates

Land Title Frauds

The Indian real estate industry faces a real challenge in maintaining, verifying and searching for title deeds. Just a fraction of them are digitally available thus making title ownership susceptible to fraud due to multiple claims of ownership. Blockchain can prevent such cases by digitising land titles. It will enable every property to have a digital address in the blockchain that consists of additional details like occupancy, finance, ownership records, specifications and attributes of the property as well as existing legal disputes, if any. These parameters would be available to everyone and will be correlatable, thereby, reducing the speed of the transaction from days/weeks/months to minutes.

Transfer of Property

Transfer of a property using Blockchain becomes a simple process. The first owner is required to ‘rehash’ (encrypt) the document in the blockchain to prove the transfer of title of the land to the new owner. The transfer process currently takes weeks/months, a lot of paperwork and a considerable processing fee. With blockchain, this interchange will barely take a couple of seconds.

Smart Contracts

Smart Contracts based on blockchain can ease repetitive transactions or contracts like rents, deposits, installments by automating them. Using a feature called ‘multisignature’ in the blockchain, two parties can enter into an automatically binding agreement. The open-source nature of smart contracts ensures that contracts are executed as dictated by the source code. These contracts, therefore, are automatic, transparent and once executed are indisputable, irreversible and unalterable thus ensuring high confidence among users.

Disintermediation

The real estate sector suffers from an over-reliance on various intermediaries like brokers, registration officers, banks, notary, etc as these middlemen hold key information/access that isn’t available to the common man. Blockchain, as a decentralised medium would help bring all this information on to a common platform and enable its distribution, thereby ensuring that the information is transparent and hence, available to everyone minus the various fees that one pays during the process.

Additional Uses of Blockchain in Real Estate

Blockchain can also empower online real estate markets by upgrading their abilities and functionalities. Right now, the portals serve as a means of connecting people to real estate properties by providing information about the property and assisting in site visits. With the advent of blockchain, these real estate markets will be converted to something like a stock market allowing buyers to find sellers and execute real estate transactions on-the-go.

The transparency and speed of action offered by blockchain technology will open avenues for crowd ownership or fractional ownership in real estate. These investments can be used for rental purposes, as collaterals in loans, or for personal benefit as outlined by the terms of the agreement. Further, this will also open doors for foreign investment in Indian real estate, thereby, improving the quality of living and commercial spaces.

Conclusion

Industries are resistant to change, especially when the change is transformational in nature. Blockchain as a technology is in a very nascent stage. It will take a while for the Indian real estate sector to adopt and build on the technology. That combined with forward-thinking from realty firms in convincing consumers to embrace the technology, and the government’s efforts in designing and implementing policies will decide the future of the technology. The trichotomy of RERA, demonetisation and GST has brought transparency into the system and has built the perfect environment for such transformational changes to take place. It is now up to the stakeholders to step up.

(Previously published in March 16 2018 edition of HT Estates)




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Defining the skyline of NCR- Gurgaon

Gurugram’s Real Estate Recovery in 2018

Last updated on February 12, 2019 by Subhasish Das

Gurugram was largely responsible for the NCR real estate market making a steady recovery during 2018. The city witnessed large scale developments in the last couple of years – from public infrastructure and housing projects to commercial and retail developments. Infrastructure developments such as the Dwarka Expressway, Southern Peripheral Road, and Rapid Metro which connects areas in Gurugram such as Cyber City and Golf Course Road to Delhi and NH8, are driving Gurugram’s real estate market. Gurugram has the third-highest per capita income in India. It is this financial muscle that realty developers are looking to capitalise on, and top developers in Gurugram have been fairly successful in doing so, especially after the implementation of the RERA Act and GST. With improved accountability and transparency, more people are returning to invest in this market. The Haryana Affordable Housing Scheme or HUDA scheme rolled out by the Haryana government in 2013, …

Gurugram’s Real Estate Recovery in 2018

Gurugram was largely responsible for the NCR real estate market making a steady recovery during 2018. The city witnessed large scale developments in the last couple of years – from public infrastructure and housing projects to commercial and retail developments. Infrastructure developments such as the Dwarka Expressway, Southern Peripheral Road, and Rapid Metro which connects areas in Gurugram such as Cyber City and Golf Course Road to Delhi and NH8, are driving Gurugram’s real estate market.

Gurugram has the third-highest per capita income in India. It is this financial muscle that realty developers are looking to capitalise on, and top developers in Gurugram have been fairly successful in doing so, especially after the implementation of the RERA Act and GST. With improved accountability and transparency, more people are returning to invest in this market.

The Haryana Affordable Housing Scheme or HUDA scheme rolled out by the Haryana government in 2013, has augmented the availability of affordable housing projects in Gurugram and other cities in Haryana. It was envisaged as a sincere attempt to provide affordable homes within the limits of the main city, and the implementation of the scheme has been fairly successful. Below we look at these and other factors that shaped Gurugram’s real estate market in 2018.

The Revival of the Gurugram Real Estate Market

Gurugram’s recovery from the jolts of demonetisation, GST and the RERA Act has been a positive one. Market analysis shows that the sector is slowly adjusting to policy changes and recovery can be observed on both the supply and the demand side. According to a report by property consultants Knight Frank, Gurugram witnessed a 35% increase in launches in 2018, and 8% increase in sales from last year. There was also a 15% reduction in unsold inventory indicating that sales and buyer confidence has picked up in the market.

Improved Infrastructure

Improved public infrastructure generally contributes to an improved real estate market. The completion of the Dwarka Expressway has had quite a direct impact on realty prices and general buyer sentiments. Further improvements and enhancements on DEW will boost Gurugram’s realty growth. Upcoming developments such as the Delhi-Mumbai Industrial Corridor (DMIC), and proposed Jewar Airport are also pushing growth in this region. These developments have ensured seamless connectivity from far-lying suburbs to the office and commercial hubs. Consequently, a number of affordable housing projects are coming up in peripheral suburbs where land rates are relatively low.

New Launches by Established Realty Developers

The region of NCR witnessed a 35% increase in the number of units launched, out of which 52% of the units were in Gurugram. Projects that are near-completion or ready-to-move-in apartments are garnering more inquiries from buyers. Established players such as Godrej, Shapoorji Pallonji, Hero, Sobha, etc. have announced a number of launches in 2018 in Gurugram, indicating the rising stocks of its realty market. Additionally, the commercial market in the NCR region has witnessed a 14% growth in leasing and a whopping 86% growth in new launches. Gurugram was also the leader in the absorption of office spaces, accounting for 66% of the absorption in the NCR region.

Push for Affordable Housing Projects

Residential inventory in Gurugram is priced relatively higher than other regions NCR. However, its relatively better infrastructure makes it an attractive market for aspirant homebuyers. To cater to this demand, HUDA launched a number of affordable housing projects in the last 2 years. Under its scheme flats are priced between 15-25 lakhs, with exemption of maintenance charges for up to 5 years and possession promised within 4 years. The flats were allotted through a supervised lottery. This scheme, as documented, has benefited thousands of families and brought the dream of ‘affordable housing for all’ closer to reality in Gurugram.

It is a model, based on a solid foundation that has found success in Gurugram and offers a template for policymakers elsewhere to follow and replicate. Also, trends such as smaller apartment sizes, integrated townships, ready-to-move-in homes are contributing to the sale of affordable housing projects in the city.

Gurugram’s real estate future’s looking brighter in 2019. A number of projects are nearing completion and attracting interest from buyers. As observed, although the first half of 2018 witnessed a rise in affordable housing projects in the Gurugram market, the second half has seen notable developers launching projects above the 75 lakh price band indicating demand for such developments. The improved infrastructure developments have further attenuated Gurugram’s desirability factor.




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Bangalore Realty Market Is Self-Correcting To Meet Homebuyer’s Demand

Last updated on October 29, 2018 by Subhasish Das

Bangalore has emerged as the most preferred real-estate markets in India, over the last 10 years. There are numerous reasons for this, such as the booming IT industry and growing infrastructure. However, the most crucial aspect of homebuying is cost, and buying a home in Bangalore is relatively economical when one compares it to the exorbitant realty markets of Mumbai and Delhi-NCR where one has to break the bank in order to pay mind-boggling sums of money – at least 1 crore or more – to buy a decent sized home in these cities. Having said that, Bangalore’s housing market, like all other urban markets, faces similar socio-economic challenges including income disparity. Hence, a better understanding of the segmentation of the market with respect to the budget will enable builders and investors to be able to tap into this housing market. We quizzed random prospective home-buyers in Bangalore to understand …

Bangalore Realty Market Is Self-Correcting To Meet Homebuyer’s Demand

Bangalore has emerged as the most preferred real-estate markets in India, over the last 10 years. There are numerous reasons for this, such as the booming IT industry and growing infrastructure. However, the most crucial aspect of homebuying is cost, and buying a home in Bangalore is relatively economical when one compares it to the exorbitant realty markets of Mumbai and Delhi-NCR where one has to break the bank in order to pay mind-boggling sums of money – at least 1 crore or more – to buy a decent sized home in these cities.

Having said that, Bangalore’s housing market, like all other urban markets, faces similar socio-economic challenges including income disparity. Hence, a better understanding of the segmentation of the market with respect to the budget will enable builders and investors to be able to tap into this housing market.

We quizzed random prospective home-buyers in Bangalore to understand how much their budget for an apartment and their preferred location. In the process, we recorded over 6000 responses. Our findings are documented in the following graphs and they tell an interesting story which goes much deeper than what initially meets the eye.

Budget of a Homebuyer in Bangalore

63% of the respondents were looking for apartments in the 50 lakh to 1 crore range. About 23% have a budget that is less than 50 lakh. Altogether, a staggering 86 out of 100 respondents have a budget of less than 1 crore. This is in sharp contrast with what the market offers as projects built by reputed builders are priced at 70 lakh or above.

Budget of homebuyers in Bangalore
Budget of homebuyers in Bangalore

This has contributed to a disparity between demand and supply. Perhaps, this explains why most housing markets in India have a large share of unsold inventories piling up every year. A recent survey conducted in (H2) 2017 by real estate consultants JLL paints a similar picture, “as many as 70,000 residential units remain unsold across Bangalore in 2017.”

Budget Range of Bangaloreans – 2 & 3 BHKs

In terms of a budget for 2 BHK & 3 BHK apartments, our research revealed that 73 out of 100 buyers are looking to invest 55 lakh or lesser in order to buy a 2 BHK apartment. Whereas, in order to acquire a 3 BHK flat, 76 out of 100 buyers are looking to invest a maximum of 80 lakh. In fact, the apartments developed by big builders are priced at least 35%-50% more than the expected price of homebuyers. This disparity is a strong indicator of the largely ignored socio-economic reality of the people living in metropolises in India.

It should be noted that a larger quantum of residential housing demand is in the lower ticket range (55 lakh or lesser – 2 BHK) & (80 lakh or lesser – 3 BHK). Developers would profit by catering to this huge market by optimally designing their development strategies.

Locational Preference of Homebuyers in Bangalore

 

Preferred location of homebuyers in Bangalore
Preferred location of homebuyers in Bangalore

 

With respect to location, trends of previous years continue to remain the same in 2018. South Bangalore, home to the IT sector, accounts for almost half the share (46.6%) of preferences for localities in Bangalore. Meanwhile, North and East Bangalore appear to be the next preferred destinations at 21.7% and 21.5% respectively. West Bangalore with suburbs like Rajajinagar, Vijaynagar accounted for the last significant part of the pie at 10%. Central Bangalore is a commercial hub and home to some of the most posh and expensive residential areas like MG Road, Lavelle Road, Vittal Mallya Road and Richmond Road. Being the most developed zone in Bangalore, residential projects in these localities are scarce and even those are pricey, and hence accounted for a meagre 0.3% of sales.

Ray of Hope for the Real Estate Market

The trichotomy of demonetisation, RERA Act & GST has transformed the real-estate market. The positive effects of these government initiatives took some time to reflect on the market, as buyers played the waiting game in 2017.

2018 has been the year of consolidation, as builders have increasingly started recognizing the needs of the market by launching affordable homes (upto 40 lakhs) and mid-range segments (less than 80 lakh) to meet various demands. The Knight Frank report on housing trends in 2018 (H1) notes this trend, “60% of new launches in Bangalore in H1 2018 were in the 25-50 lakh bracket.”

Developers are now competing aggressively to highlight RERA compliance, availability of occupational certificate (OC), PMAY eligibility and ready-to-move-in projects in the 40-75 lakh segment, thus highlighting the effects of RERA & PMAY CLSS initiatives on the developers and the real-estate market.

What Lies Ahead for the Real Estate Market in Bangalore?

Bangalore, with a current population of 12.5 million, is booming. It is home to a large number of working class people, and is the 5th largest contributor to India’s GDP. Government initiatives such as RERA Act, and PMAY-CLSS with a vision of ensuring ‘Housing for All’ by 2022, are facilitating the entry of first time homebuyers to the market. There is a significant section of the population that’s looking for budget and affordable homes in the city. Developers should look to tap into this section while paying close attention to homebuyers’ limited budgets and designing projects under PMAY-CLSS schemes which have a wider appeal.

To conclude, what was once an unorganized market marred by uncertainty, inconsistency and lack of transparency is now more regulated, transparent, responsive and consumer-oriented. However, the transformation of the sector can only be complete once the builders and investors understand the requirement of the customers (in terms of size and pricing of homes) and accordingly match supply to the demand. This in turn would reduce the number of unsold inventories, thus aiding developers, and self-correct an erroneous market. The signs of change are undeniable.




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RERA Act 2016

Real Estate Trends Of 2018 Shaped By Events of 2017: An Analysis

Last updated on January 8, 2018 by Chrisanta Dias

At the start of 2017, the Indian real estate sector was grappling with the after effects of demonetisation which came out of the blue towards the end of 2016. However, 2017 brought even more change in the form of the roll out of Real Estate (Regulation and Development) Act, 2016 (RERA) and implementation of Goods and Services Tax (GST). 2017 will be considered as a watershed year in Indian real estate; a year in which the boys of real estate development were separated from the men, and consolidation took place. It will remain the year in which the Indian homebuyer was given his/her due and place in what was seen as a ruthless sector. While the majority of the notable real estate trends of 2017 were marked by regulation, some were infrastructural. The metros (both tier-1 and tier -2 cities) have seen the implementation of massive infrastructure projects, which will …

Real Estate Trends Of 2018 Shaped By Events of 2017: An Analysis

At the start of 2017, the Indian real estate sector was grappling with the after effects of demonetisation which came out of the blue towards the end of 2016. However, 2017 brought even more change in the form of the roll out of Real Estate (Regulation and Development) Act, 2016 (RERA) and implementation of Goods and Services Tax (GST). 2017 will be considered as a watershed year in Indian real estate; a year in which the boys of real estate development were separated from the men, and consolidation took place. It will remain the year in which the Indian homebuyer was given his/her due and place in what was seen as a ruthless sector.

While the majority of the notable real estate trends of 2017 were marked by regulation, some were infrastructural. The metros (both tier-1 and tier -2 cities) have seen the implementation of massive infrastructure projects, which will raise the standard of living in these metros, and as a result draw more people and developers to fulfil this demand. Affordable Housing and PMAY has also given broad hope not just to homebuyers in the lower middle class and low income category but also to developers who have been looking to make inroads into this sub-sector but have lacked the right incentives.

2018 is now underway, and as far as real estate is concerned will be dictated by the upheavals and trends of 2017. Let’s review the year gone by and what it holds for 2018.

RERA Act video
The RERA Act of 2016

Real Estate (Regulation and Development) Act, 2016 (RERA)

It was a long awaited regulation and was expected to be homebuyer-friendly. RERA has introduced many much-anticipated checks and balances to even out the playing field in real estate. Developers have been given space and incentives to adhere to their deadlines and steadily clean up a ‘dirty’ sector. They can now focus on completing under-construction projects and maintain transparency about allocation and usage of funds. Homebuyers on the other hand will have recourse to justice should developers continue to flout the rules.

RERA officials have led the way by ensuring timely approvals and granting registration numbers to projects. Maharashtra has been the standout state in this regard and has set an example for a RERA-fied real estate sector. Most of the other states are struggling to get their act together, however, some like Karnataka and Delhi have finally started issuing RERA approvals. As other state authorities take their cues from these frontrunners, homebuyers can expect timely project deliveries and developers can hope for better housing sector performance in 2018. On the flip side we can also expect to see many more litigations related to RERA in 2018 and for sure these verdicts will bring further clarity in the rules, as pertaining to various states.

Goods and Services Tax (GST)

GST was another long awaited regulation. Meant to replace a bunch of other taxes and streamline the rates on many goods and services across industries, GST shook up the economy. Since its implementation, various iterations were made to different rates. In the real estate sector, under-construction properties are being levied a GST rate of 12% while residential rentals are exempt from GST. Thus, GST brought confusion about application and led to increased prices and delayed possession. This proved to be counterproductive given the opposite effect of RERA. However, some developers took advantage of the situation to push sales of ready-to-move inventory by advertising the attractiveness of such properties sans GST. Moreover, developers are yet to benefit from accruals of input tax credit which can they can in turn, pass on to homebuyers. As this and further iterations happen to various rates in 2018, developers hope the GST rate comes down to stoke homebuyers’ interest in new construction purchase.

How does the GST impact your home buying decision
How does the GST impact your home buying decision (Image credit: Sundayguardianlive.com)

A Cleaner Sector?

Experts as well as critics are unanimous about the winds of change sweeping through the sector. The hope and expectation is that the changes are positive, enabling transparency about capital acquisition and allocation, faster approvals to developers, fewer construction delays and quicker possession for homebuyers. This in turn provides opportunities to developers – big and small – to adopt transparent practices and shed the notorious tag that has dogged the sector for decades. One can say with certainty that trust from customers is something the real estate sector has lacked. This is a big factor in any transaction. With these new regulations, as the grey areas start to fade away, there is hope that developers can begin to earn the trust of homebuyers.

Affordable Housing & PMAY

The Pradhan Mantri Awas Yojana was hailed as an enabler and a welcome government housing scheme. Under this scheme the government rolled out plans in rural as well as urban areas to enable more families to access affordable housing. Projects under this scheme picked up steam in 2017 and in the quarter ended September 2017, home sales increased 5% year on year in the top 8 property markets of the country powered by a 24% surge in affordable housing sales. Significant uptick of 11% was seen in the affordable segment with prices less than Rs 25 lakh. This is attributable to the fact that developers are realising the benefit of increasing supply in a category where demand is driven by financial and fiscal benefits under the ‘PMAY Housing for All’ subsidy scheme.

2018 will see further growth in this particular housing market as the government has approved construction of 112,083 more affordable homes under PMAY with an investment of Rs 8,105 crore. This means the total homes sanctioned under PMAY(Urban) has now gone up to 3,052,828. All of this is good news for developers looking to make a mark in this sector as well as for first home buyers looking for quality and affordable homes.

Indian and Japanese PMs at the laying of the foundation stone
Indian and Japanese PMs at the laying of the foundation stone (Source: The Guardian)

Infrastructure Developments

Across the major cities, huge investments were made in upgrading existing infrastructure as well as installing new ones. This includes expansion of metro projects in Delhi, Bengaluru and Mumbai while Hyderabad will see the launch of metro transport. Additional lines connecting distant suburbs will enhance connectivity and improve travel times and provide better commuter experiences. Simultaneously big ticket projects like the Delhi-Mumbai Industrial Corridor (DMIC), Dwarka Expressway (now provided National highway status), India’s first Bullet Train from Mumbai to Ahmedabad, and the new airports in Navi Mumbai and Jewar are aimed at boosting trade, infrastructure and standard of living across the country. Work on most of these will continue in 2018 and some like the Dwarka Expressway will be completed.

Overall, 2017 can be considered a busy year. It brought upheavals and yet signalled major changes and overhauls in the way the industry was operating. There can be opportunities in change and it is up to the major real estate companies to lead the way even as smaller companies are seen to be adapting quickly and eating into market share. For homebuyers this is a wait and watch period to observe how these changes unravel and what benefits it brings. They also need to focus more on doing their own due diligence and research, before making a decision. Public RERA portals provide access to information like never before thus enabling informed decisions. 2018 is definitely a year to watch out for in Indian real estate.




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RERA Act 2016

Has the Real Estate Act raised eyebrows in Karnataka?

Last updated on July 10, 2017 by Nivedita

Ending months of uncertainty, the Karnataka government finally passed the Real Estate (Regulation and Development) Act 2016. A statement issued by the State law minister, TB Jayachandra, read, “the rules are on the lines of Gujarat and Rajasthan, but the state has largely adopted the central law.” Though touted to be a harbinger of change for the overall realty sector, the notified rules of the Act are being largely debated by the real estate fraternity and real buyers alike. While the Act has been welcomed by industry stalwarts, buyers, on the contrary, are not really satisfied. Few have even gone to the extent of blaming the state government for defeating the whole purpose of a law passed by the Parliament. The seriousness of the matter can be gauged by the fact that the all India chapter of Fight for RERA has decided to file a petition in the Supreme Court …

Has the Real Estate Act raised eyebrows in Karnataka?

Ending months of uncertainty, the Karnataka government finally passed the Real Estate (Regulation and Development) Act 2016. A statement issued by the State law minister, TB Jayachandra, read, “the rules are on the lines of Gujarat and Rajasthan, but the state has largely adopted the central law.” Though touted to be a harbinger of change for the overall realty sector, the notified rules of the Act are being largely debated by the real estate fraternity and real buyers alike.

While the Act has been welcomed by industry stalwarts, buyers, on the contrary, are not really satisfied. Few have even gone to the extent of blaming the state government for defeating the whole purpose of a law passed by the Parliament. The seriousness of the matter can be gauged by the fact that the all India chapter of Fight for RERA has decided to file a petition in the Supreme Court over the dilution of rules by the states (including Karnataka). Further, the Karnataka chapter is also planning to challenge the state government separately. In fact, there is a petition that is being widely circulated in the social media requesting the Chief Minister of Karnataka to include all ongoing projects under the ambit of RERA.

Interestingly, despite being one of the first states to notify the draft rules last year, it failed to set up a state-level regulatory authority and release the final rules within the set deadline. This resulted in denizens getting up in arms against the state government and blaming it for intentionally depriving the consumers of reaping the benefits of RERA.

The government, however, claimed that the delay was on account of ‘prolonged discussion.’ The noted members of the authorities were constantly deliberating on whether to include or exclude ongoing projects under the Act. Buoyed by this delay, thousands of home buyers were waiting with bated breath for the Act to come into place. Finally, the dust of uncertainty settled with the state cabinet passing the bill on July 5, 2017, albeit with a few changes.

First and foremost, the decision to exempt projects that have executed 60 percent of the sale deed has not gone well with the buyers. Why? Well, simply because even after the project is half completed, in many cases, the construction work proceeds at a snail’s pace. In fact, there are certain projects where construction is almost completed but the buyers have not got the possession. The move has been welcomed by the developers as they feel that had all projects come under the ambit of RERA, it would have adversely impacted the property values and construction progress.

The decision, however, raises several serious concerns. To begin with, there is no clear mechanism as to how the stage of completion of a project will be defined. Developers can potentially manipulate it in their favor as the topic is clearly subjective. Moreover, if the final decision of this determination is left to the builders, many fear that the Act will just be another useless law.

The decision has also drawn flak as aggrieved citizens strongly believe that it has been announced keeping in mind BDA and Karnataka Housing Board. Had all projects were brought under RERA, the government would have been forced to pay huge penalties to allottees in layouts such as Kempe Gowda Layout, where basic infrastructure including sanitary and water lines is a distant cry from reality.

The move is also likely to result in developers focusing more on new projects rather than the ongoing ones. The new projects will have to follow the stringent guidelines and meet the set deadlines without any fail. Thus, the chances of projects that are 60 percent completed getting delayed cannot be ruled out.

All said and done, the Act could have definitely been better and more in favor of consumers. As we wait for a Gazette Notification to be issued, let’s take solace in the words of Venkaiah Naidu, “the Real Estate Act is coming into force after a nine-year wait and marks a new beginning of a new era.”




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Gautam Chatterjee

RERA Is A Paradigm Shift For The Better: Gautam Chatterjee

Last updated on July 7, 2017 by Nikita Shrawagi

The chairman of the Maharashtra Real Estate Regulatory Authority which implements the Real Estate (Regulation and Development) Act (RERA), Gautam Chatterjee is quickly gaining a reputation for being a tough taskmaster in implementing RERA in Maharashtra. A retired bureaucrat, Mr. Chatterjee is an authority in urban housing and played an important role in framing the housing rules in the state. He has previously also headed the Slum Rehabilitation Authority (SRA), Maharashtra Housing and Area Development Authority (MHADA), Dharavi Redevelopment Authority (DRA) and was also a housing secretary in the past. The Real Estate (Regulations and Development) Act, popularly referred to as the RERA Act of 2016 has come into force from May 1, 2017 and is said to bring about a sense of clarity and order to the Indian Real Estate sector. The Act has defined a set of stringent norms for the real estate developer, the intermediary, as well …

RERA Is A Paradigm Shift For The Better: Gautam Chatterjee

The chairman of the Maharashtra Real Estate Regulatory Authority which implements the Real Estate (Regulation and Development) Act (RERA), Gautam Chatterjee is quickly gaining a reputation for being a tough taskmaster in implementing RERA in Maharashtra. A retired bureaucrat, Mr. Chatterjee is an authority in urban housing and played an important role in framing the housing rules in the state. He has previously also headed the Slum Rehabilitation Authority (SRA), Maharashtra Housing and Area Development Authority (MHADA), Dharavi Redevelopment Authority (DRA) and was also a housing secretary in the past.

The Real Estate (Regulations and Development) Act, popularly referred to as the RERA Act of 2016 has come into force from May 1, 2017 and is said to bring about a sense of clarity and order to the Indian Real Estate sector. The Act has defined a set of stringent norms for the real estate developer, the intermediary, as well as the consumer. Chatterjee believes his aim is to make the system favorable to the buyer. He says,

RERA will ensure that builders give the buyer whatever product he has promised. It will encourage transparency, fiscal discipline and better implementation of regulations.

The fact that Maharashtra’s RERA will borrow from the state’s own regulatory proposal of 2012 was also revealed.

At the 9th edition of the CII Realty and Infrastructure Conclave on 7th July in Mumbai, Mr. Chatterjee was vociferous in his plea to developers to get their projects registered before the July 31st deadline. He has promised to ensure full cooperation from the regulator as well as faster approvals. To the customer, he has promised transparency in the availability of all approvals on the Maha RERA portal.

In an interview with NDTV he stated that there are several provisions in Maharashtra’s RERA, of which the home buyers will be the beneficiary, some of which are discussed below:

  1. RERA’s Retrospective Effect:

Since Maha RERA has made it mandatory for all ongoing projects without Occupation Certificate (OC), to be registered within three months, the effect is retrospective and signifies hope for homebuyers who feel duped due to project delays and developer malpractices.

  1. Full disclosure Expected from Developers:

Developers will be expected to disclose timelines for project delivery, a method of calculation of project prices, details of materials used, among other specifications. This is to ensure buyers know what are getting into when they choose a future home.

  1. Regulation of Real Estate Ads:

Developers will no longer be allowed to lavishly advertise their projects without proper approvals. All false claims will be penalized as per provisions in the Act.

The most recent reports are that MOFA may be a thing of the past. The Maharashtra Ownership Flat Act (MOFA) 1963 is the state’s oldest legislation that safeguards the interests of consumers.  Gautam Chatterjee has written a letter to the State Housing Department, asking for MOFA to be repealed. According to Chatterjee, RERA has provisions that override all other real estate acts. At a housing event organized by Zee 24taas and DNA with CREDAI-MCHI, he said, “I have written to the government (housing department) on repealing MOFA.” He suggested, “a Maharashtra Transfer Act 2017 needs to be brought in.” Chatterjee said that such an act could cover projects that do not require registration and hence are outside the realm of RERA. “The new act will cover three aspects – liability, conveyance, and creation of a legal entity,” he said.




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Conversations with INCOR Group – What Does RERA Mean For Home Buyer

RERA Act 2016

Heightening the anticipation of many (for most of the later part of 2016), were the two processes of India’s biggest Tax Reform, GST, and the Demonetization Drive (announced by the Hon. Prime Minister on the 8th of November, 2016). This anticipation has led to a lot of talk about their impact on the Real Estate Sector (a major driver and important contributor to the economic growth of the country). However, another major law that will have a far greater impact, than the two above, on all concerned is the Real Estate (Regulations and Development) Act, 2016 (also called the RERA Act).

This Act, promulgated by the central Government, which all States and UT’s will have to roll-out in the immediate future, envisages setting out clear roles and responsibilities of all players (developers, customers, government, agents etc.) and a mechanism to keep track of real estate projects. It mandates the setting up of a Real Estate Regulatory Authority (RERA), something like TRAI, which will have powers to regulate the sector and improve its functioning from time-to-time as per prevailing conditions.

However, as a home buyer, what does this Act mean for you in specific and the industry in generic? Here are some pointers in a Question Answer format:

Q1. I am planning to purchase an apartment in a project, which is currently under construction and likely to be completed in a year or so. Will my project be covered under this Act, as it was initiated before the Act?

Yes, all ongoing and new projects at the time that the Real Estate Regulatory Authority (RERA) is installed, will need to register with the said Authority RERA and follow all provisions mentioned thereof. This applies to both residential as well as commercial projects.

In case your project has already received its completion certificate (CC) from the local authorities certifying that the constructed project meets the approved plans as submitted with them prior to implementation of the RERA Act by the state/Union territory government where the project is located, no registration is required with the Authority and the project will be out of the purview of the Act. The same also applies if your project has been granted the Occupancy Certificate (OC) prior to the Authority getting set up, as the OC is given only after the CC.

Real estate (Image credit: The Indian Express)
Real estate (Image credit: The Indian Express)

An important point to be considered is that different states may have different conditions with regards to project coverage under RERA, but in general, the state RERA will be expected to, by and large, keep the essence of the central Act. The states of Uttar Pradesh, Madhya Pradesh and Karnataka have already implemented their own RERA, but while the latter two states have by and large, no conflict with this provision of the Central law, the states of Uttar Pradesh and Gujarat (draft version) have sought to exclude certain ongoing projects from the purview of the Act.

Q2. I own an apartment and am looking to give it out on rent. Do I come under the Act?

No, rentals are outside the purview of the Act.

Q3. A developer is offering good incentives to buyers in the Pre-launch and soft launch phases of his project. Should I go in for the same?

As a concept, a “Pre-Launch” of any project offers a Developer a platform to raise needed funds for kick starting a project, helps in cash-flow and also acts as a gauge to the demand for the project enabling more realistic projections in/of the future. Now, a Developer will have to raise funds from other sources, often at a higher cost, in the absence of these funds from Pre-sales.

However, Developers will have to first secure all approvals and register the project with RERA before any kind of launch, thus bringing down the associated risk factor for a home buyer. It’s likely that the higher cost of capital (raising funds) for Developers could reflect on the price buyers pay for their home later.

Q4. The Act mentions that 70% of the amount collected by the developer from home buyers (like me) are to be deposited in an escrow account. What does this mean for me?

While this practice (utilization of an escrow account) has slowly picked up (and most reliable developers are doing this voluntarily now), RERA requires that the developer deposits a sizable amount (70%) of the amount he receives from customers into an escrow account for greater transparency where funds being used for which they are collected, i.e. construction of the project.

real-estate-regulationQ5. The developer promised me possession by a certain date, but a year on, I am yet to receive it. What does the Act have for me?

Developers will submit project timelines as agreed between the buyers and themselves to RERA and both parties are expected to adhere to their part of the agreement. This means that the Developer needs to compensate the buyer, as per the AOS, in case of delays and at the same time, the buyer will need to pay penalty for delayed payments (as per the agreed Payment Schedule and/or as mentioned in the AOS) from their side too. Hence, this Act ensures transparency and fixes responsibility of both parties in a real estate transaction.

Q6. Can I check the plans, approvals, timelines etc. for my project and get updates on the actual progress of work on site from the developer?

RERA will operate a web-portal, where any viewer can check all details related to a project, including the plans, approvals, timelines, names of contractors, number of units and also disclosure about all areas (including common areas, carpet area and others) etc. Developers will also need to share regular updates on the progress of the project for greater transparency. It is the responsibility of a home buyer to do their due diligence on the project via the portal, so that they are assured of the developer’s credentials and the project’s adherence to quality and time standards.

Real estate and Black money – Does demonetization break this nexus?

At around 8 pm on the evening of November 8, 2016, I switched on the television to catch the latest buzz on the big event of the night, the US Presidential elections. Just then, Prime Minister Narendra Modi began addressing the nation. By the time his speech ended, the news cycle had changed completely. By demonitizing the ubiquitous Rs. 500 and Rs. 1000 notes with almost immediate effect, he left newsreaders, economists, business people and the common man scrambling to decipher the impact of this huge move. Brought in to curb the seemingly interminable problems of Black money, corruption and circulation of counterfeit currency in the Indian economy, this move effectively ‘trumped’ the happenings in the US of A (pun intended).

Carried out in the manner of a well-planned operation, the timing of the speech coincided with the period when most merchants down shutters for the day. The demonitization move had been kept secret for months. By setting the same midnight as the timeline for these notes to become invalid, not only did the announcement leave those with plenty of black money in shock, it virtually provided them no opportunity to get rid of some of it, rendering their vast stacks of cash worthless almost at one go.

armageddon-in-realty-sectorA SIT committee on black money had earlier this year, while submitting their final report, made this recommendation to withdraw these high denomination notes. However, many experts did not expect this to actually be carried out, owing to inconvenience to the public and the influential vested interests involved. Now that it is a reality, let’s examine its impact on the economy and our primary area of interest i.e. the property sector.

The size of the black money problem

The Domination of Cash in India

It is said, with good reason, that in India, ‘cash is king’. For many years, people in the country have preferred cash against other instruments such as cheques, demand drafts, plastic money and the recent introduction of online payments and mobile wallets have not stemmed this tide. The reasons for this are the convenience that cash offers and its acceptability everywhere, from local grocery shops and hand cart vendors to big departmental stores and high end restaurants. People and traders alike preferred to settle transactions in cash and save money on taxes. It is at this point that white money becomes black (unaccounted for money).

With a large number of transactions going unaccounted for, the loss to the government and the public exchequer is immense. It was observed that most of the black money hoarded as cash was using the old Rs. 500 and Rs. 1000 notes, which triggered this action. At the same time, these two (now demonitized) denominations account for a whopping 86% of all cash in circulation in the Indian economy, so wiping it out in one go has a major economic cost. One can also argue that the black money phenomena is a major driver of economic growth in the economy, particularly for making big ticket investments or purchases in items such as jewellery, gold and real estate.

An estimate on the black money in India

While the exact amount of black money operating in the Indian economy is hard to quantify, estimates range from 6% to a whopping 20-30% of India’s GDP. Considering the overall size of the Indian economy, which has a nominal GDP of $2.25 trillion, the black money can be estimated to be around $450 billion to $675 billion, a massive sum whichever way one looks at it. With a portion of this black money also being used to fund terror and other activities inimical to the country, the government felt the need to take this drastic step.

Black money and Real estate

If there is one sector which has become synonymous with black money, it is the real estate sector. The percentage of black money is estimated at a massive 40%, higher than the share in the broader economy. Insufficient regulation, lackadaisical implementation of laws and the necessity of securing numerous approvals and licenses made real estate a haven for corruption, mostly funded by black money.

Prime Minister Narendra Modi announcing the crackdown on black money
Prime Minister Narendra Modi announcing the crackdown on black money (Image Credit: The Indian Express)

Cash outflows for builders

Most real estate expenses are, till date, handled in cash. From payments made for land or raw materials, bribes paid to authorities for permissions or for changing the land use policy in their favour and even wages paid to labourers working on construction sites, most outflows of builders are settled in cash. Many politicians too ‘cashed in’ on this trend, by investing heavily in land and/or apartments. By accepting payments from customers in cash, builders sought to replace these outflows as well as invest the same in other projects.

Primary and secondary market

There has been some improvement in recent times with laws such as Real Estate (Regulations and Development) Act or RERA bringing in greater transparency in the sector. Most transactions in the primary market (purchasing directly from developers) are now carried out using white money by means such as cheque payments or loan disbursements directly from banks. However, the secondary real estate market, which refers to purchasing property from interested sellers, investors or from other sources, remains a big concern, with 40% or more of such transactions being carried out in cash.

People at times are forced to “convert” their white money to black to fund property purchase. For years the RBI and revenue department tried out several means to check this practice of transacting in cash in property dealings, but there were loopholes everywhere which were never plugged. There was seemingly a premium to “all white” transactions as people would want to defray the tax impact.

The Real estate ‘bubble’

The prevalence of black money caused a real estate bubble and pushed up land and property prices in the primary market as well. Things have reached such a pass that real estate in many areas of India is more expensive than that in developed countries. Though investors (who largely invest using black money) made a killing, most home buyers suffered. With incomes not rising to match up to the appreciation in apartment prices, buying a home, which is a dream for many, turned into a nightmare.

Mismatch between the market rate and circle rate

Adding to the problem is the wide variance between the market rates of a real estate transaction and the government mandated circle or ready reckoner rates. These rates, which form the basis for determining the stamp duty and registration charges applicable on the land, have not been updated for a long while and more often than not, do not reflect current market realities. With circle rates far lower than market rates, customers made some savings on these charges, but this lead to loss of revenue for state governments, while adding to the builder’s black money.

The Impact of the Crackdown

Having looked at the past, now let’s look at the future i.e. the impact this move will have on real estate. Is this move really the game changer that it is touted to be?

Invalidated Rs. 500 and Rs. 1000 notes
Invalidated Rs. 500 and Rs. 1000 notes

Creation of a level playing field

One of the major positives of this crackdown on black money is that it would bring some order to this sector. A number of reputed developers, both listed and unlisted, struggled to compete with fly by night operators transacting primarily in cash, who were able to lure customers through various cash based incentives and then, leave them hanging either due to delays in possession or not providing what was promised. With RERA and the ban on high denomination notes for transactions taking away any such incentives, all developers will be forced to adopt transparent means, with all transactions being noted by the authorities.

Correction in property prices

The real estate market has been rather sluggish over the past couple of years as the general economic slowdown has seen housing demand fall. However, the inflated property prices have stayed more or less stable, due to the black money menace and in anticipation of a demand pick-up. With this announcement, a long overdue correction in prices is expected. Investors in “cash” will resist further investments or end up risking disclosing their net worth to the taxman.

Mr. Pankaj Kapoor, a respected analyst in the real estate sector, has predicted a 30% fall in property prices. For prospective buyers looking for good value for money, this anticipated correction is a welcome opportunity.

Greater transparency

For developers, it would be extremely difficult (if not impossible) to be able to conceal details of their transactions from the authorities, whether in terms of purchases or payments made or the actual sale cost of properties. With strict limits set on transactions and with all notes in circulation being monitored closely, in combination with the upcoming Goods and Services Tax (GST), greater transparency will result. Home buyers too would benefit from the same, with developers being held accountable for any unkept promises or delays.

More tax revenue for governments

With authorities getting far better visibility on the inflows and outflows of developers, tax evasion should come down sharply. Improved tax compliance and a desire to claim the input tax credit benefit offered by the GST will serve as incentives for developers to comply with all taxation demands. The governments will get greater taxation revenues, which can be invested in boosting the economy and improving the lives of people.

Another benefit of this increased visibility of transactions is that the state governments will be able to determine the actual market rate of land in an area and accordingly, revise the circle rates to reflect the same on a regular basis. This should close another avenue for black money in this sector.

Change in financing methods

Many developers have demanded a portion of the down payment from customers in cash, which they could use for other purposes. This should, now, become a thing of the past, with payments being made either by cheque or by loan disbursements directly from banks or financial institutions. The housing loan products will probably need changes to reflect the same.

Increase in project delays or abandonments

This move is expected to hit the small time players or fly by night operators in the real estate sector hard. With cash flow getting hit, they are likely to face a serious liquidity issue. Investments made in new projects with such cash may be delayed or scaled back sharply, with the possibility of project abandonment also quite high. For those home buyers, who have already invested in such projects, it may not be good news.

In the long run, however, the elimination of such players from this sector would be a major boon. In the interim, customers will need to be on their guard and do all necessary due diligence on the builder before booking a property.

Greater overheads for developers

Developers will no longer be able to pay their labourers or for their raw material in cash. Account transfers and cheque payments will be the way to go. It’s likely that they may have to open bank accounts for those labourers, who don’t have one currently, for making salary payments. This will bring the labourers under the formal banking system and enhance financial inclusion. If these accounts are registered under the Jan Dhan Scheme, they will also be able to avail of benefits and subsidies provided by the respective governments.

Conclusion

One can say that this crackdown on black money by demonetizing high denomination notes is a welcome step towards cleaning up the Indian economy and the real estate sector in particular. As mentioned by the Prime Minister in his speech, some short term pain is expected but in the long run, the benefits to the country far outweigh the initial discomfort. Unsurprisingly, the real estate stocks have fallen by around 14% following this move, but one should see the stronger listed players bounce back soon.

The importance of transparency in real estate transactions has been reinforced, as also the need for home buyers to check the antecedents of the developer and their projects carefully, before finalizing a purchase. An overdue correction in prices will be a big boon to those looking for greater value in their homes, while also indirectly helping in financial inclusion of the hitherto unbanked labourers. It’s important that this scheme is implemented properly and any loopholes are plugged for it to achieve its objectives and the country to benefit.

The details displayed on the website are for informational purposes only. Information regarding real estate projects including property/project details, floor area, location data has been sourced from multiple sources on best effort. Nothing contained herein shall be deemed to constitute legal advice, solicitations, marketing, offer for sale, invitation to acquire by the developer/builder or any other entity. You are hereby advised to visit the relevant RERA website before taking any decision based on the contents displayed on the website.

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