The Governments increasing and pro-active legislative/regulatory changes are rapidly transforming the Indian Real Estate landscape. These changes are not only limited to the existing plethora of lands laws prevalent in the country but also arise from the shift in fiscal policies by the Government. These changes shall have a cascading effect on the Indian real estate market and promises to transform the existing real estate regime which Indians were previously familiar with. This article discusses and summarizes some of the pivotal legislations/regulatory changes which form the seeds for such transformation:
Demonetisation – The Governments move to flush out the existing high value currency notes in circulation November last year has had an unprecedented effect on the Indian real estate market which previously thrived on the cash ‘component’ involved in real estate transactions. In one swift blow, the Government has been successful in flushing out a majority of the cash which ‘unofficially’ catapulted prices and lead to an exponential growth in the Indian real estate market. The after effects of demonetisation have been serious and various States have been forced to revisit the existing ‘circle’ or ‘collector’ rates for immovable properties and have also begun to significantly reduce stamp duty rates leading to a correction in real estate prices – pan India.
RERA – The Real Estate (Regulation and Development) Act, 2016 (RERA) promises to give rise to a new era in the Indian real estate sector – an era of regulation, transparency, structure and security. RERA is an unprecedented law which seeks to transform the real estate market by ensuring that the terms and conditions of the agreement between the builder and buyer are enforced resulting in effective regulation of this previously unregulated sector by setting up of monitoring regulatory authorities and appellate tribunals in each of the States. RERA also aims to regulate and monitor the working of real estate agents/brokers throughout the country. RERA provides for strict penalties in case of delay by developers, allottees and real estate agents which may also tantamount to imprisonment in case of continued default which is a first under Indian law.
GST – The new unified tax regime, Goods and Services Tax (GST) is being actively implemented by the various States. GST aims to change the existing complex tax regime which included taxes such as VAT, service tax, excise duty etc. which often lead to ambiguity and lack of transparency for the developers and end-users. Developers shall benefit from the increased margins available to them and GST shall help them reorganise their supply chain for projects in a more efficient manner. GST shall help the end user by simplifying the taxes payable during the purchase or construction of their unit/immovable property.
FDI – The Government of India has relaxed certain stringent norms which were prevalent earlier which has made Foreign Direct Investment (FDI) investment into real estate projects a more attractive and lucrative option. These relaxations include that the minimum thresholds related to the area to be developed have been removed, foreign investor has been given liberty to exit the project even before the completion date (subject to lock-in period of 3 years), no prior approval required for the sale of investment by the foreign investor to another non-resident where there is no repatriation of investment etc. Therefore projects under construction (regardless of size) can have access to FDI. Further, it has been clarified that 100% FDI under automatic route is permitted for operation and management activities in constructed projects etc. It has also been clarified that earning of rent / income on lease of the property (subject to certain conditions) will not be regarded within the definition of 'Real Estate Business' in terms of the FDI policy.
REIT – The introduction of Real Estate Investment Trusts (REIT) shall open up a platform that will allow all kinds of investors including those with smaller pockets (minimum investment is INR 2 lakhs) to make secure and lucrative investments into the Indian real estate market. The REIT platform has already been approved by the Securities and Exchange Board of India (SEBI) and like mutual funds, it will pool the money from several investors across the country into a single trust for investment into profitable real estate ventures. The trust shall distribute 90% of the income among its investors in the form of dividends. A REIT is supposed to provide diversified and safe investment opportunities with risk mitigation and under a professional management to ensure the maximum return on investments.
Digitisation of land records – The Digital India Land Records Modernization Programme (DILRMP) launched by the Government of India has picked up steam and aims to digitise the management of land records, minimize scope of land/property disputes, enhance transparency in the land records maintenance system, and facilitate the establishment of definitive title for immovable properties across India. This mammoth task is being monitored closely by the Centre and is being implemented at both the State and District levels. The major components of the programme are computerization of land records such as mutations, registrations, digitization of maps etc. DILRMP will be an on-going process which aims to ensure that Indians – for the first time – will be able to access land records comprehensively via the internet and shall be able to verify/establish definitive title of various immovable properties.
Digitisation of building approvals – The implementation of “single-window clearances systems” and digitisation of “online approval for sanction of building plans” is playing an increasingly vital role in streamlining development of real estate projects in India. Various municipal corporations, industrial authorities and development agencies of the government have simplified the method of obtaining approval of building plans which has traditionally been a complex and tedious process. For instance the South Delhi Municipal Corporation’s online system launched in April 2016 for sanctioning building plans has set a record wherein a building plan was sanctioned within 27 minutes as opposed to a traditional waiting period of almost one month. Similarly, Haryana Urban Development Corporation, Maharashtra Industrial Development Corporation etc. have introduced simplified single window clearance systems for development of industrial plots falling within their jurisdiction.
Yudhist Narain Singh, Real Estate Lawyer
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