Month: December 2017

How Will RERA Benefit The NRI Buyers?

Undeniably the implementation of The Real Estate (Regulation and Development) Act, 2016 (RERA) is backing the real estate sector towards achieving a better accountability. Pre-RERA real estate sector used to be the most unruly sector with the poorest transparency level between the buyer and the seller. Non-residential Indians wanting to invest in Indian property market can now avail better transparency level along with standardized practice method. This is how implementation of RERA brings benefit for NRI property investors-

1. Accountability on real estate developers- Real estate developers has to comply with RERA norms for their business continuity. Thus, it’s obligatory for the developers to register their on-going projects with the state regulatory authority (RA) and to secure a timely deliverance along with a proper quality check. Now buyers shouldn’t be worried about project completion.

2. Timely update- Builders are now time-bound in terms of project deliverance. Alongside they need to update a quarterly progress report on the development on the state RERA website.

3. Secure investment- RERA mandates builders to maintain an escrow account with 70% of the received amount from the buyers. This amount can only be used for existing development work.

4. Better transparency- RERA is a big relief for the NRIs as there is significant transparency between the developer and the buyer. Now with the presence of the RERA website NRIs can access any data about the developer and their project works from anywhere. They will get to watch the project status on the site at any time.

5. State-wise distribution- Since real estate is a state subject, thus RERA is spread separately in states. NRIs can track all the project development works according to their area preferences. Interested NRIs can check for the details of the projects on state RERA websites.

6. Builders liable for interests- In case of possession delay, the builder is liable to pay interest on the value of the project to the NRI buyer until the delivery. Thus, NRIs don’t need to follow up builders regularly. Any delay will result in compensation which will benefit them anyway.

7. Simplified process-Under RERA real estate transaction and follow up have become less complicated than earlier which is a bigger benefit for the NRIs to understand the entire transaction process. Now they have a legal platform to raise their voice and file complaint against any deceptive act of the builders. RERA will monitor every realty transaction so that it can protect the consumer rights at its best.

8. Presence of a regulatory body- Now a regulatory body can be easily accessed to get exact information about construction works or the developers. Before RERA buyers used to move consumer courts for reporting fraudulent cases. Now buyers can easily approach the state RERA authority on account of any misleading approaches by the realty stakeholders.

“Real estate sector in India has been evolving into a secured and intelligent investment venture for the NRIs. NRI buyers can now actually monitor the development progress of their invested projects and use the legal platform in case of any default whenever needed. With increased security level of investment, enforcement of RERA broadens the scope of realty investment in India,”- said Mr. Mahesh Somani, Chairman- National RERA Committee, Head- East Zone, National Association of Realtors India (NAR).

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Government To Use PSU Land To Boost Affordable Housing

In an attempt to support affordable housing, the government has already provided infrastructure status and now it’s considering to tweak the land use policy in order to meet the deadline for the project deliverance. Modi government now plans to allow a vast portion of surplus land belonging to sick public sector undertakings (PSUs) for building low-cost homes in urban areas.

A calculation, initiating this decision measures that more than 1 lac homes- of around 800 sq ft each- can be built on land with just 8 PSUs of about 2500 acres. “Housing for All by 2022” aims to develop 1.2 million homes. These PSUs include sick industrial companies such as- HMT Bearings in Hyderabad, Hindustan Antibiotics in Pune, Heavy Engineering Corporation in Ranchi, Indian Drugs and Pharmaceuticals in Gurgaon and HMT Watches in Nainital which are nearing to be closed down.

Reportedly, the cabinet will float tenders for the same in the next couple of weeks by the department of public enterprises. The state-run NBCC which is likely to be appointed as the land management agency for suffering PSUs will help in selling the land parcel. The profit from this land selling will be used to clear up their outstanding liabilities and implement of voluntary retirement schemes prior to the closing or privatization of the enterprises. Also, the unsold lands will be either auctioned by the government or used for affordable housing construction.

Earlier, in September the Ministry of Housing and Urban Affairs had given a hint about this move. After the announcement, it has induced eight public-private options, together with 6 for promoting affordable housing using government lands. Under this model, the public authority will make the payment of such buildings based on the progress on of the project as per lay down and buyers will be paying their part of the cost of the housing to the government. The government targets to deliver as much as low-budget flats before the general elections early in 2019.

The government has an ambitious target to develop as many as 12 lac projects under Pradhan Mantri Awas Yojana (Urban) PMAY-U, under which the urban dwellers with an annual income up to Rs. 18 lacs will get interest subsidy up to 4% on their borrowed housing loans up to Rs. 12 lacs. Of the approved 30.76 lac homes, 15.66 lac houses are under construction, while only 4.13 lac have been constructed since the introduction of this scheme. These affordable homes are set to bridge the gap between the demand and supply disparity in the urban areas. With the limited availability of land and its towering price, it is the biggest challenge for the private developers to deliver a quality house within a limited budget. This scheme gives a relief up to Rs. 1.5 lacs per EWS occupancy with an interest subsidy of 6.5% on home loans up to Rs. 6 lacs.

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Can Aadhar Linkage Mark Down Benami Property Transaction?

‘Aadhaar linkage with property’ is another forthcoming step by the central government of India aiming to straighten out in real estate transactions. Linking of the unique Aadhaar number with property transaction will make the real estate sector more transparent. Now the big question how the homebuyers will have benefit from this move? Depending on the success of this move, legal ownership of property will have a sharp-cut. Still, the authenticity of the process of Aadhar linkage with the property is not free from doubts.

1. How far is biometric system infallible mechanism?
2. How will the process eschew the black money transaction which has involvement with the Benami Ownership?
3. Is PAN linking not that effective as Aadhar does?
4. Through this mechanism will government able to monitor transaction between two private parties in the secondary market?
5. Won’t this process further amass realty slowdown?
6. How will the government handle the data concerning the privacy portion?

Since, biometric is involved with Aadhaar card linkage, people using fake identity proofs such as dupe PAN Card or Passport will be there easily under government’s radar. Through this mechanism, the government will monitor property transaction and the practice of using Benami entities might face the ultimate inhibition.

While, the homebuyers disagree with the reason given by the government regarding this process, as they find this mechanism is not full-proof. As the biometric focus on the fingerprint identification, if anyhow some unfortunate incident happens which might upset the physical condition of the finger, in that case counting the fingerprint identity won’t be secure enough.

Few experts cite that the real threat to country’s economy is the rampant circulation of black money, whereas owning Benami property comes much later. Black money generation in real estate sector relates to the price disparity of the real estate products where reported price (area circle rate) mismatches with the original market price. Thus, the government should first come up with a substantial mechanism.

As a parallel, while having the legal take on linking Aadhaar with property transaction, it points out that the government should amend its UIDAI Act first to integrate new measures. The UIDAI Act mandates Aadhaar card for providing people government subsidies and benefits. While purchasing home totally depends on the personal capacity, the buyer is paying money to the exchequer by the way of stamp duty, he can’t be said to avail of government subsidies and benefits. Under the Registration Act of 1908, property-related transactions are always in the public domain. Any person can inspect the books of registration, by paying nominal fees- says Section 57 of the Registration Act, 1908. Then how can Aadhar linkage will identify such fake identities in real estate transaction?

Multiple other concerns with Aadhaar linkage :
• Right to property is a constitutional right, under Article 300A of the Constitution of India. With Aadhaar linkage, the government will get information about your property transaction against the existing ownership.
• The government wants to inspect large-value transactions in real estate with Aadhaar linkage.
• Homebuyers are primarily concerned about the safety measure of the personal data.
• Without digitization of land record linkage of Aadhaar can’t fully secure the property market from Benami ownership.

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Risk Involvements In Auctioned Home Purchase

There’s no myth in the selling of repossessed properties. These properties are sold through physical or e-auctions. Though these auctioned properties offer ample scopes to the bargainers, it’s a slightly riskier investment zone and needs to be gingerly invested. A lender legally repossesses a property, when a buyer fails his/her repayment.

The bank claims only the base price against such property put up for auction, commonly known as the base price the price gets determined by the total outstanding loan amount of the defaulter to the lender. The decided base price somehow remains lower than the current market appreciation by at the most 30% in some cases. The auction process has become transparent since the online platform was made available for the bidders. These properties are auctioned on an “as is, where is” basis. It’s worthwhile mentioning that more than retail investors, high net-worth real estate investors shine on these deals with their nexus with bank managers and agents.

Banks recoups its dues from the bid amount of the auction. Seeing as these auctioned properties come with an “as is, where is” clause, banks don’t hold any responsibility. From a buyer’s perspective, they need to ensure whether the risk is as good as the discount they are getting from the lender. Before one chooses to invest in such auctioned properties here some precautions that you need to watch for-

Loans from other lenders
Sometimes auctioned properties have their other dues. Mostly this happens in the case of land parcels than that of constructed flats. In such cases, the property might be mortgaged to other lenders too. Most of the lenders work on original sale agreement, share certificates and NOC from the housing society. One needs to diligently verify other co-related documents such as documents provided by the bank, the civic body and, the tax authorities. In case of joint-ownership property make sure owners are the co-borrowers in the loan agreements for avoiding future troubles.
Other outstanding dues
The winning bidder has to bear other all other pending co-related liabilities such as- pending society dues, electricity bill, outstanding tax dues. All these additional dues will cost added to the buyer. In case the earlier owner has projected less value during the time of registration and the department has raised any claim on that can put an investor in troubles in the coming days. Thus, the previous circle rate should always be verified. For under-construction projects, verify from the builder whether there is any outstanding.

Property titles
In most the cases banks provide loan against a clear title. Yet, some instances are there, where banks sanctioned loans for properties that don’t have occupancy certificates. Thus, there is no place for guesswork while investing in an auctioned property. Checking all due diligence of the property has become easier with RERA execution. Now legal diligence of any ongoing and under construction property, including builders’ info along with his previous track record will be available on the state RERA website. But when it comes to an auctioned project, it’s beyond RERA purview. Hiring a real estate lawyer for scanning all transactions for a reasonable time period (at least for the last 30 years) is highly recommended. Make sure that property doesn’t involve any tenancy records.

Physical condition of the construction
Since the property has been repossessed by the bank, there is high chance of the low-maintenance of the asset. Even before the auction banks hardly pay any heed regarding the physical condition of the property. Thus, before diving in the process, you should visit the property and its surrounding locality to have a fair assessment of the property condition. If possible, assign a civil engineer for this task for bringing the present property condition and prospective valuation under the radar.
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Realtors are warned over GST contrivance

Construction companies and realtors could be punished by the Goods and Sales Tax (GST) authorities if they don’t disseminate input tax credit to the end-users by cutting off the property price. Now property buyers, especially buyers of the apartments won’t have to bear any additional hidden price in name of tax payments.

Reportedly, the Central Board of Excise and Customs at Delhi and its offices in other states have received several complaints from homebuyers who have booked apartments or made part payments after July 01, 2017. According to the filed complaints, these people were asked to pay a higher tax for instalments paid after the afore-mentioned date.

Explaining which GST commissioner, Vizag, N Srujan Kumar said, “This is against the GST law. Action will be initiated under profiteering section 171 of the Good and Services Tax Act against developers who collect higher tax on instalments of flats under construction. Therefore, the developers are advised to pass on the benefits of input tax credit to the buyers by reducing the price of the flat.”

The profiteering sector of the unified tax regime says, the registration of the errant developers can be cancelled and the developers are also asked to refund extra money collected from the home buyers in name of tax collection. The Act also necessitates the authorities to pass order asking developers to cut down property price and pass on the tax credits to the buyers in the future. Realtors pass on the tax benefit to the end-users, while they are refilling this breach with oversized installment money taken from the home buyers.

As per the GST commissioner GST levied on the construction of flats, buildings and complexes are somehow undersized than some central and state indirect taxes payable by the developer under the pre-GST regime which includes- central excise duty, VAT, entry tax and taxes on construction materials which initially were paid by the developers and they ended up passing those on to the home buyers. As under GST the full input credit is available for the developers, they shouldn’t pass on the taxes on construction materials to the customers; rather they should pass on the tax benefits by lowering the property price or installments.

The complaints being received by the GST offices across the country narrates some other story where developers are continuing to pass on the 2.5% input tax to the buyers. Again, they are charging higher tax or instalments from the buyers in several states. On their defence, developers are saying passing on the tax benefit to the buyers and ascending price of raw materials of the construction are two different subjects to be considered and somewhere the government is mixing up these two. While transferring 12% GST to the government, the input tax credit benefit ranging from 4.5-5% is too being passed on to the buyers. Developers affirmed that they have to wait until the end of this financial year for input tax credit calculation purpose and only then they can reach any conclusive decision on the same. The constant problem which has been bothersome to the developers is increased price of construction raw materials such as- cement and steel.

However, it’s worthwhile mentioning that apartments that are ready for possession along with occupancy certificates are exempted from GST ambit. Consumers are asked to pay 12% of GST for apartments without occupancy certificates.

 

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