What can the Indian Real Estate Sector expect from Elections 2019?

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What can the Indian Real Estate Sector expect from Elections 2019?

The real estate sector in India received a renewed impetus, courtesy structured reforms ushered by the implementation of RERA and the government’s focus on affordable housing.

With the introduction of RERA (Real Estate (Regulation and Development) Act, 2016), while buyers gained confidence in buying both residential and commercial sector properties, real estate companies too benefitted from transparency and improved accountability.

As a result, the year saw India move up to the 35th position in 2018, on the global real estate transparency index, from 40th position in 2014.

The drivers behind this continual improvement are liberalisation of Foreign Direct Investment, policy reforms initiated by the government and real estate innovation in the form of to comprehensive workflow automation solutions.

With the General Elections around the corner, 2019 to promises to be the year when the real estate sector would continue its upward stride in terms of improved transparency, construction reforms and buyer mindset.

As the country anticipates for the elections to culminate and a new government to be formed, here’s what the real estate sector can expect from the elections 2019.

  • Stable Markets & Affordable Housing

The realty sector in India has been somewhat stabilised since 2017, with no evident bubbling prices and contracting gap between demand and supply. Going into the elections 2019, the government’s new mantra for real estate is “affordable housing”. With PMAY (Pradhan Mantri Awas Yojana) already in full action.

Also, the real estate market is thriving under various reforms such as relaxed norms for Real Estate Investment Trust (REIT), and Foreign Direct Investments (FDI). Post elections, the new government could look to introduce more attractive schemes for affordable housing and reduce components such as stamp duty and GST on under-construction properties, once it comes to power.

Overall, a stable five-year government helps improve market stability and make way for better foreign investments and relaxed regulations.

  • Simplified Regulations

For Indian buyers, the biggest concern related to the real estate sector is the delay in possession of their homes. While the delay in completion of property can potentially derail their finances, any such delay could also mean a loss of credibility in public for real estate companies.

Some of the primary reasons behind the construction getting delayed include the sluggish governmental approval channels and overly-complex hierarchies. Many real estate developers still rely on the old ‘paper trail’, instead of a real estate management system, especially when it comes to procuring construction materials, managing project construction costs and getting design and heavy equipment operation approvals from local authorities.

With the new, stable government possibly getting elected, the real estate sector could expect simplified regulations, faster approvals, and subsequently, improved time to market.

  • Tax Benefits on Affordable Housing

Earlier governmental policies considered any unsold inventory over one-year-old as stock-in-trade. As a result, the real estate company had to pay notional rent on those units.

With increasing levels of unsold inventory, the outgo from builders too continued to surge. Therefore, the government’s interim budget declaration, right before the elections, to increase the exemption from notional rent payment from one to two years comes as a welcome respite for the builders.

With this step, the government looked to minimise the risk associated with unsold residential inventory, which in turn could pose a threat to market liquidity.

“Moreover, the government has declared under the budget had earlier extended Section 80-IAB, which allowed real estate companies to avail 100 percent deduction on profits generated from affordable housing projects till March 2020.”

Furthermore, in March 2019, the GST Council passed a resolution, allowing real estate companies to choose between input credit with the existing higher tax rate and the new flat rate effective from April.

“Companies can now opt for the existing 12% tax rate for under-construction properties (as on 31 March). However, they will have to pass on the input tax credit benefits to customers. On the other hand, real estate companies can choose the new GST rate of 5%, which will be effective from 1 April.”

For under-construction affordable homes, companies can choose between the existing rate of 8% or the new rate of 1%, on a case to case basis. This, in turn, would allow them to keep their tax liability low.

With these changes being announced before the elections, the realty sector can expect the new government to build upon these reforms and introduce more comprehensive tax benefits for the real estate companies post-elections.

  • Elections 2019 – What Does the Future Hold for the Real Estate Sector?

The year 2019 promises to be both opportunistic and challenging for the real estate sector. Apart from the general elections, improvements in infrastructure and credit growth are likely to set the tone for the sector’s economic growth in the future.

Before the year started, real estate developers had their focus on clearing out the existing inventory and adjusting to the new stringent compliance requirements under RERA.

The increased accountability and transparency is expected to continue in 2019 as well, with the implementation of title insurance, and digitisation of process workflow through real estate management systems.

Further, post elections, the Real Estate Investment Trusts (or REIT) listings are set to infuse liquidity into the commercial real estate. This, in turn, will fuel the demand for office space from sectors such as logistics, IT, BFSI and manufacturing and consumer goods.

References:

http://ficci.in/spdocument/23021/JLL-FICCI-Report.pdf

https://www.outlookindia.com/outlookmoney/real-estate/the-2019-election-year-its-impact-on-the-indian-real-estate-sector-2780

https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/imagining-constructions-digital-future

https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/seizing-opportunity-in-todays-construction-technology-ecosystem

https://credai.org/rera

https://pmaymis.gov.in/

 

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