A Win-Win Situation For Key Stakeholders

Real estate is a clear winner with many significant announcements made in recent times. The latest was the finance minister’s Atmanirbhar Bharat 3.0 stimulus package which is not just meant to bring the time-bound relief for real estate sector but also viewed as a bumper Diwali gift by the government to ease the stress on the sector and wriggle it out from the aftermath of covid pandemic.

Much-needed relief for developers and buyers

According to industry experts, by giving a major boost to residential real demand amidst the ongoing festivities, the FM’s announcement brought the much-needed income tax relief for developers and homebuyers. This will be effective immediately upto 30th June, 2021 and applicable for residential sales in the primary segment for ticket size upto Rs. 2 crore. “The increase in the differential between circle rates and agreement value, from 10 per cent to 20 per cent (under Section 43CA), is indeed a good move,” says Anuj Puri, chairman, Anarock Property Consultants, adding, “this limited-period offer will benefit both developers and homebuyers.”

Also complements Ramesh Nair, CEO & country head, JLL that this will benefit both buyers and sellers by reducing and rationalising tax outgo to a great extent. Developers will now have the incentive in the form of this revised tax provision to pass on the benefit of lower market prices to buyers without incurring additional tax liability under the erstwhile provisions. Shishir Baijal, chairman & managing director, Knight Frank India, puts in too that for homebuyers, it is a clear added financial benefit to round off the existing offers and discounts.

Additionally, as Puri further informs that, the consequential relief upto 20 per cent to buyers of these units under Section 56(2)(x) of the IT Act for the said period will definitely boost demand, especially in the affordable and mid segments.

Further elaborating on the offer, Gaurav Karnik, partner and national leader – real estate, EY India, says, “The leeway of 20 per cent between stamp duty circle rate and the prices at which the developer would like to sell the houses should help liquidate inventory held by developers today, especially in places where circle rates have gone beyond the market rates. Where the circle rates are in line with the market rates it also provides an opportunity for developers to reduce the price and liquidate the inventory.”

For developers, this move will help clear unsold stock. “The income tax relief will ensure tremendous liquidity into the market and the measures will incentivise people to buy homes,” believes Lincoln Bennet Rodrigues, founder and chairman, Bennet & Bernard Group, known for their luxury homes in Goa.

As per Anarock research, there are approx. 5.45 lakh unsold units across the top seven cities priced upto Rs 1.5 crore while another 49,290 units priced between Rs. 1.5 crore to Rs 2.5 crore.

A step towards fulfilling ‘housing for all by 2022’

The additional outlay of Rs 18,000 crore for PM Awas Yojana (PMAY-Urban) is another welcome step by the government towards fulfilling its vision of ‘housing for all by 2022’. Anshuman Magazine, chairman & CEO - India, South East Asia, Middle East & Africa, CBRE is quite optimistic that the announcement of the additional outlay will lead to generating employment along with supporting other industries, having a multiplier effect on the economy.

Puri adds that the additional outlay is over and above Rs 8,000 crore already spent this year. “It will help 12 lakh houses to be grounded and 18 lakh houses to be completed. This will help bridge the housing gap in the country to a good extent and is simultaneously an excellent economic growth driver by creating more employment.”

Five years after the implementation of this ambitious scheme, PMAY-Urban has made steady progress across states. “As of August 2020, a total of 1.06 crore homes had already been sanctioned in the country, of which 33 per cent or approx. 35.18 lakh homes are completed while another 66.23 lakh units have been grounded for construction,” updates Puri.

In addition to this, Magazine emphasises that the infrastructure debt financing support announced by the government in the form of Rs 6000 crore equity will attract more investments in infrastructure development. Thus, all these measures seem to collectively improve India’s competitiveness and can go a long way in boosting the initiative to build a ‘self-reliant’ India.

Less beneficial for metro cities

But some experts are of the view that the announcement without the capping on the flat value to be eligible for Rs.2 crore would have led to cheers for developers across the sector and the customers this Diwali. Sharad Mittal, CEO, Motilal Oswal Real Estate is of the view that while this will certainly help the real estate sector liquidate inventory as it brings more homebuyers to the fore, the impact will be limited as unsold inventory is highest in Mumbai and NCR markets where properties values are higher than Rs. 2 crore.

Further emphasising on the capping, Niranjan Hiranandani, president, NAREDCO & ASSOCHAM, says, “This will result in most projects in metro cities not being able to take advantage of this, it has consistently been pointed out by industry bodies that price points in metro cities need to be kept in mind while offering any such relaxation.” Hiranandani goes on to add that the ideal situation would have been one where this relaxation would be applicable to commercial real estate transactions as well.

However, for realtors like KT Jithendran, CEO, Birla Estates, it is a win-win situation as the reforms will allow developers to drive faster and profitable conversions on unsold inventory and make room to focus on further expanding the business, as well as, infuse affordability for homebuyers in the form of income tax relief. “This in addition to the improvements announced in the recent past such as linking the LTV ratio to new housing loans, reduction in stamp duty, GST concession, etc., will be instrumental in providing the right impetus, and we believe it is already aiding in breaking industry’s slowdown chain as we witness consumer sentiment improve quarter-on-quarter and sales recovering back to pre-covid levels,” concludes Jithendran.

Realtors’ Forum

Industry experts say that as per the recent Supreme Court ruling, the period of allotment of the housing unit to the buyer will be decided based on the date of the builder-buyer agreement. Excerpts…

Gaurav Karnik
Partner & National Leader – Real Estate, EY India

“The ruling is positive from the buyer’s perspective in certain instances. Developers were using the date of registration under RERA and the period specified under the registration to extend their commitments on delivery of units rather than following the terms of the builder-buyer agreement, which is the key document between the two and hence terms contained therein should be treated as sacrosanct.”

Amit Jain
Managing Director, Mahagun Group

“We welcome the apex court’s decision to consider the date of builder-buyer agreement as the date of allotment to the buyer and not the date on which the project got RERA registration. It’s a relief to the buyer who have been struggling to get their units on time. With these decisions, the real estate sector is fast getting streamlined.”

Manju Yagnik
Vice Chairperson, Nahar Group & Sr. VP, NAREDCO (Maharashtra)

“The ruling upholds the sanctity of the builder-buyer agreement and accordingly the buyers would get compensation for the project delay. It sends out a strong signal to developers that they will have to adhere to the timelines as mentioned in the agreement. Hence, the move will ensure timely possession and handover of housing units to the buyers.”

Sanjay K. Chadha
Prominent Advocate & Managing Partner, BSK Legal

“Millions of homebuyers got a sigh of relief with the apex court’s verdict that the period of allotment of a housing unit to a homebuyer has to be considered from the date of the builder-buyer agreement and not from the date of registration of the project under the RERA. It yet again proves that the judiciary is there for all aggrieved homebuyers.”

Krish Raveshia
CEO, Azlo Realty

“The SC ruling holds the sanctity of the agreement signed between the developer and the homebuyer. It will boost the confidence of the homebuyers who invest their hard-earned money in real estate. The move will give a boost to the investor’s sentiment in the sector. It will ensure timely completion and handover of the real estate units to the buyers.”

(kausar.outlook@gmail.com)