15 August 2020

Realty Biz

Reviving The Real Estate Industry

 

 

In order to revive the constantly receding real estate industry of India, we need to understand the industry, the fine components it consists of and above all remove some myths and misnomers from our mindsets before framing any policy for the industry.

 

 

First and foremost, we must remove the following myths plaguing the real estate industry in India.

 

MYTH : ALL BUILDERS ARE CHEATS

 

FACT : This has by far been the most ‘accepted’ misnomer and is widely and generously used whenever the real estate industry in India is discussed. We all need to understand that gone are the days when a typical builder used tosell flats as per his whims and fancies and could also demand the price as per his wish. Of late, real estate business in India has taken the shape of a proper industry and those builders who could be termed as the cheats are practically out of market now. Quite a lot of times, the builders do not get permissions and clearances in time despite having incepted their project and quite a lot of times they are not disbursed their loans in time despite having purchased the land and invested their share of money in the project. But, in all the cases, it is only them who are blamed.

 

 

MYTH : INVESTORS ARE NOT REQUIRED

 

FACT : Most of the government policies, tax structures, duties and levies in this industry are designed keeping only the end users in mind. Like any other industry, real estate industry too needs investors to plough in money to help the industry grow. These investors if they make some money after remaining invested for some time is good for the economy.Investors here mean all those buyers who are buying the real estate not for self-use.

 

 

MYTH : IT IS WISE TO ELIMINATE BROKERS FROM THE INDUSTRY

 

FACT : This has been the most hidden, least expressed myth of the industry. Heart in heart, every buyer or the seller wants to save the money to be paid to a broker but, the fact is that even today, almost none of the parties is able to conclude a deal without a broker. The broker is the catalyst in a deal. It is him who actually gets the deal concluded smoothly. Despite this, none of the policies is framed for him and the real estate broking industry at large.As per my analysis, on a conservative estimate, the real estate broking alone is a `18,000 crores industry in India and there are over 5,00,000 Real Estate Brokers across India but, sadly there is not even one law safeguarding this profession.

 

 

MYTH : REAL ESTATE PORTALS ARE A SUBSTITUTE TO BROKERS

 

FACT : This is not only a strong but also is highly accepted myth. With the advent of technology, it is good to have these portals and websites which sell real estate online but, these technological platforms are in no way a substitute to brokers. These portals, since are not bound by any specific law, are never as authentic as the real brokers operating in a locality. In the times to come, the role of a professional broker will increase. It is hence necessary to recognise and organise this profession too. On one hand, a law is required to govern the online real estate portals while on the other hand a law is also required for the real estate broking fraternity.

 

 

MYTH : THE CIRCLE RATES ARE THE ACTUAL RATES OF THE PROPERTY

 

FACT : This, in fact, is the myth which almost everyone accepts. Why then we have such circle rates ? Earlier, it was believed that the circle rates are generally the rates lower than the actual rates prevailing in a locality. So much so, these rates used to be almost three fourth of the actual rates prevailing in a locality and everyone used to deal accordingly. The problem now is that, owing to the present market situation, these circle rates in some of the localities are higher than the actual rates. Situation has so become especially in the present time when the property rates are changing almost with every deal in an area while the circle rates are revised only once a year. These rates not only affect the mindsets of the parties dealing and are not only becoming hurdles in the deals but also are affecting the outgo of buyers and sellers towards duties and taxes. Circle rates of an area need to be fixed very meticulously after an in-depth study of the properties and property prices prevailing in a locality. If needed, the same should be revised more than once a year. Furthermore, the method of allowing discounts and depreciations and also adding of premia on these rates needs to be revised and be made more practical. General assumption that commercial properties are more expensive than the residential or industrial properties in a locality is no longer valid and requires a further analytical and comparative study.

 

How to revive the industry and what is expected from the law makers …

 

 

Removal of the double taxation

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At present, if a property is sold for a price less than the circle rate, the buyer as well as the seller, both are liable to pay the income tax on the difference between the actual sale price and the circle rate. It is understandable for the state governments to charge stamp duty on the circle rates but, taxing the seller and even also the buyer based on the circle rates is a regressive tax policy, more so in today’s time when the circle rates in some areas are actually over rated. More specifically, the Section 56(2)(x) of the Income Tax Act needs to be relooked upon.

 

 

Rationalisation of Stamp Duty

 

Stamp duty on the sale of properties is one of the major revenue earners for the states in India but, charging the same irrationally in a situation where the industry is fighting for its lost sheen is being harsh. Such duties should be revised to be brought down to a maximum of 2% of the property value. Levying such duties through a backdoor by way of any cess or surcharge or inflating the property prices should be completely done away with.

 

 

 

Rebate in Stamp Duty on Resale of Properties

 

All those buyers who are not buying properties for self-use are termed as investors in the real estate industry and such investor-buyers are required to revive the real estate sector. In the resale of properties, the stamp duty should be charged only on the incremental sale value. That means, the buyers should be asked to pay the stamp duty after giving rebate of the duty which has already been paid on the previous sale agreement. This will encourage the investors to come in the industry which in turn will bring in more funds in the industry. These investors will also make available more properties in the rental segment of the industry.

 

 

 

Rationalisation of GST

 

GST at the rate of 18% on commercial rentals is too high. The same should be brought down to 12%. Also, the start-ups should be exempt from such GST. All those start-ups who are renting any commercial property for their ventures should be exempt from paying the GST on their outgo of such rentals.

 

 

 

REITs (Real Estate Investment Trusts)

 

The concept has not yet picked up in India. More measures are required to develop and popularise this concept.Sellers should be allowed to invest their Long Term Capital Gains ( LTCG ) in REITs to save their tax liability on the same. Hitherto, this liability is allowed tobe set off only against the purchase of a new residential property or investment up to Rs.50.00 lakhs in some specified bonds. More specifically, the Section 54 of Income Tax Act needs to revised and reframed.

 

 

 

About the Author:

 

 

Alok Gupta is a Mumbai based Real Estate consultant in practice for over two decades. He is the President of the prestigious The Estate Agents Association of India, Central Zone One. Having travelled to over 50 countries around the world, he tries to see a situation through a common man’s eyes. He can be reached at alok@himland.in. Views expressed are personal.