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Construction : Interaction | May 2017 | Source : CW-India

RERA has been the biggest reform

- Gopal Jiwarajka, President, PHD Chamber of Commerce and Industry

Real estate had been witnessing a slowdown for the past three years, and the slowdown induced by demonetisation halted many deals. According to experts, about 15-30 per cent of transaction value in various markets used to be in black money. Today, there is a general anticipation of the removal of 20-30 per cent of cash dealings from the transaction process.

'It leads people to conclude that prices would fall by 20-30 per cent,' says Gopal Jiwarajka, President, PHD Chamber of Commerce and Industry (PHDCCI). 'The reason for such expectations is the climbing down of prices coupled with factors such as an eventual interest rate decline and the consequent rise in demand; there could be more factors. In the final form, the price correction may not be more that 8-10 per cent.ö While for him, the full impact of re-monetisation can only come to light with time, Jiwarajka shares some thoughts on major reforms in the real-estate sector.

What implications will GST have on the sector?
The probable rates for the real-estate sector are either 12 per cent or 18 per cent as per experts, even though the sector awaits clarity. There are many taxes and duties a developer pays on the procurement side, such as customs duty, central sales tax, excise duty, entry tax, etc. These are subsequently passed on to the final pricing of the units and, thereby, to the buyer.

As GST proposes to roll multiple taxes into one, the cost of construction will come down. This will bring more liquidity into the market and boost home sales.
Free flow of credit for developers will also translate into an increase in margin in their hands. Moreover, the unified tax regime will stop the unwanted practice of double taxation, which hurt real estate and other sectors, given the cascading effect that inflated prices for end-users.

How will affordable housing receiving 'infrastructure' status and RERA impact private-sector participation?
Granting 'infrastructure' status to the affordable housing sector can serve as a significant step in achieving the government's 'Housing for All by 2022' mission. This could be a game-changing step for developers who already have a good presence in the affordable segment. The Central Government has identified 305 cities and towns under the Pradhan Mantri Awas Yojana (PMAY), targeting to build 2 crore homes for the urban poor by 2022. This is expected to be the key job creator û a 38 million workforce by 2030 from the present 29 million.

RERA has undoubtedly been the biggest reform. The announcement of this law has seen mixed reviews from developers as well as home buyers. The Act has well encapsulated the features to safeguard the interest of home buyers completely. Here, to boost affordable housing, I would suggest:

  • The issues of much greater FAR or FSI and density need to be addressed, because these will be essential to make high-rise buildings, which will definitely be required if 2 crore houses have to be built.

  • Standardised and pre-approved building plans (with all essential safety measures and technical specifications) need to be available with government or local bodies for sizes of 30 sq m and 60 sq m apartments respectively.

How do you view market opportunities in the sector?
Buyers of affordable housing have received a boost with the announcement of interest subvention of 4 per cent and 3 per cent on loans up to Rs 0.9 million and Rs 1.2 million respectively. The proposed deduction of the income tax rate will increase disposable income which will, in turn, increase investment in the affordable segment. Thus, more projects will now be eligible for profit-linked income tax exemptions. Profit-linked exemption, along with infrastructure status for affordable housing, will push developers to undertake more affordable housing projects, thus increasing the participation of private players in the sector.

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