Month: June 2018

What made real estate developers file writ petition against GST council? (An industry update)

A group of real estate developers of Maharashtra recently moved the Bombay High Court against the Goods and Services Tax (GST) Council, central, and the state government of Maharashtra of late.

As per the latest industry reports, the prime reason behind dragging the central, state government, and the GST council is the applicability of GST on mere transfer of land development rights by the owner to a realty developer.

To be more specific, real estate developers challenged a recent notification which made the transfer of development rights from the land owner to the developers taxable under the revised tax regime.

In a notification published in January 2018, GST council mandated that if any construction work falls under the Joint Development Agreement (JDA) category, wherein a landowner transfers the land to a developer and gets apartment, a certain amount of revenue or a combination of both in return; GST would be levied on both the land owner and the real estate developer.

“In the past, such transactions were exempt from the tax system. Now, that the revised tax regime has been already in force, any real estate transaction under JDA will come under GST ambit and it will seek tax payment from both of the consignees, where the entire land transaction has already been kept out of the GST purview; thus situation is a bit tricky here,”- said Mr. Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India (NAR-India).

Starting from the advanced lawsuit, till the unified tax regime – nothing is going in favour of real estate developers. Tax experts consider that with this new notification of GST, it will add to the cost pressure on realty developers even bigger; as such transactions would get slower and complex credit generating process under GST. Again, for this taxability, the acquisition of land will turn to a complex process for the developers as it won’t be easy to settle the consideration with the land owners abiding the new rule.

On the other hand, the government claimed that in most of the cases, real estate developers give apartments to the land owners after the completion of the project which is nothing but consideration for the transfer of the project rights; therefore it shouldn’t be free from the GST purview.

However, the Bombay High Court issued notice to the Union Government of India, state of Maharashtra and GST Council and the next date of hearing is decided on July 9, 2018.

According to the industry experts, GST council has come to this conclusion, considering the rising trend of joint venture agreement between land owners and the developers as these ventures don’t fit in the outright land deal kind. While developers are game for JD ventures for their ease-of-investment business strategy, land owners are up for higher return on investment (ROI) prospect than just one time consideration.

Why it is the ideal time to invest in Mid-Budget Flats in Kolkata right now

Want to buy a home in your early thirties?
Are you looking for compact apartments in a metro city?

The industry experts suggest that investing in mid-budget flats in Kolkata can lead you to the throne. Research indicates that 80% of the young homebuyers consider property portals (esp video contents) while choosing an apartment. But there are other prime facts too which can return the maximum on your investment. One essential fact would be keeping yourself updated with the latest governmental announcements related to the residential realty segment. Keeping a close track on the institutional declarations is a pivotal fact to be considered while buying your home. If you miss out any, you could end up paying higher than the actual price.

Reportedly, the booking of mid-budget flats in Kolkata has increased over 20%-25% during the last fiscal. Want to know why?

Read on: In its recent announcement central government has allotted Credit Linked Subsidy System (CLSS) to the Middle-Income Group housing category coupled with an increased Floor Area Ratio (FAR).  It means middle-income group affordable housing (both MIG-I & MIG-II categories) are now eligible to claim the CLSS benefit provided by MIG-I category should have a carpet area of 160 sq meter or 1,722 sq ft and for MIG- II category it is 200 sq meter or 2,153 sq ft under the Pradhan Mantri Awas Yojana (PMAY-U) Urban. The CLSS for MIG scheme started gaining impetus in the last couple of quarters and the growth is indeed noticeable.

Since the affordable housing sector has turned out to be the newest sales outpouring source for the real estate sector in India, the Ministry of Housing & Urban Affairs (MHUPA) is absolutely leaving no stones unturned in order to give it a further boost.

It’s an open secret that the word ‘affordability’ varies from state-to-state based on several parameters such as- availability of land, socio-economic structure, cost of living, potential growth factors and lots more.
Buying flats in Kolkata meet all these said parameters successfully. And the best part is most of the top-level housing development of these days fit into the said CLSS beneficiary with ease.

Previously, there was an increment of carpet area for both MIG categories. It took the sales of affordable homes higher across the metros by 15%-17%.

Now under the revised rules, homebuyers with annual household income from Rs 6 lakh to Rs 12 lakh would be eligible for MIG I category, while MIG II for income needs to be above Rs 12 lakh up to Rs 18 lakh. Interest Subsidy for MIG I and II will be 4% and 3%, correspondingly for maximum loan tenure of 20 years.

The adequate home loan amount for interest subsidy will be Rs 9 lakh and 12 lakh for MIG I and MIG II category, in that order. Loan quantum above this limit will be at non-subsidized rates. In its recent release the ministry has declared that as on 11.06.2018, an amount of Rs.736.79 crore has been disbursed to 35,204 beneficiaries belonging to the MIG categories.

The range of the CLSS e was expanded to MIG category with the approval of the cabinet In February 2017. The scheme got its approval for implementation in the year 2017 has been stretched up to March 2019.

The recent home loan revision decision of Reserve Bank of India (RBI) foreshadowed the revised CLSS announcement by the housing ministry. As per the revised home loan structure of RBI, the housing loan limits for PSL eligibility from existing Rs 28 lakh to Rs 35 lakh in metropolitan centres (with population of 10 lakh and beyond), and from existing Rs 20 lakh to Rs 25 lakh in other centres, provided the by and large cost of the housing unit in the metropolitan centre and at other centres do not surpass Rs 45 lakh and Rs 30 lakh, respectively.

“Government’s decision to increase the carpet area further will expedite the construction part of affordable housing sector along with a close quality check. Since most of the mid-budget flats in Kolkata fall under the CLSS benefit scheme, the overall sales are expected to get a sizable augment in the coming years or so,”- says Mr. Mahesh Somani, Chairman- National RERA Committee, National Association of Realtors, India.

The increased construction activity in residential segment is about to reflect on the demand and supply chain of the core segments like- cement, steel, equipment and the other related segments. There will be a wider open horizon for the skilled and unskilled workers with the growing housing construction process across the urban areas of the country.

This is like a digging gold mine opportunity for the MIG flat buyers. People who have been in search of mid-budget flats in Kolkata, this should be the perfect time to plunge in.

Builders might have to retaliate up to Rs. 20,000 crore in accordance with new accounting rules: (Industry insight)

A life-size wave is all set to bump on the realty builders. As per the wandering industry reports, the implementation of a new accounting standard from this fiscal (starting from 2018) will compel the listed real estate companies to write back profits, that have been consummated from all those projects under completion more than a year now.

This could be another socking line of attack to greet those real estate companies which have been reeling under insolvency code for the past few years or more. However, reports suggest that developers have already submitted their request in written to the government, seeking relief.

Conforming to the global industry standard, IND-AS 115 (new industry standard) mentions that all listed real estate companies will have to write back about Rs. 20,000 crore from their net profit of the current fiscal. The new industry standard started rolling since last April of this fiscal.

Real estate companies will have to run after their project completion with best of their efforts. They will have to switch to Project Completion Method from the existing Percentage Completion Method (POC).

Under the earlier regime, the booking amounts received from the home buyers for under construction projects, used to be shown as yearly turnover and the net income generated from those projects were regarded as gross profit by the builder companies.

Under the revised norm, the amount home buyers would pay towards an on-going project, would be treated as ‘advances’/ ‘loans’; but certainly not as income from sales. The developers have to write back the profit booked till date on all on-going projects that are not fully completed under the new norm.

A recent analytic report published by the ICICI Securities said, “This would happen in the first quarter on a retrospective basis and would lead to a hit on the net worth and lead to a temporary spike in companies’ debt-equity ratio.”

In a submission to the ministry of corporate affairs the National Real Estate Development Council (Naredco) said, “Any change from Percentage of Completion (POC) accounting to accounting on Completion of Project would have a very significant revenues and cost reversal as at the opening balance sheet and re-recognition of the same in ensuing period.”

This new industry standard is expected to impact on the credit rating part. Starting from the revenue generation to the net profit – every calculation will be under the finest institutional radar. This will not only have a direct outlook on the debt-equity ratio of the companies, but also restrict the borrowing capacity of the companies too.

Alike DLF and Lodha Group, many other leading real estate builders have kept their mum on this new industry standard and profit calculation part in amalgam.

“Real estate sector in India has been witnessing one after another massive changes during these past 3 years. Under these significant changes and stringent framework, there is no way a builder can escape from the ethics and the industry standards for his survival and sustenance, in the present market scenario. This change in particular, will definitely have a big bite on the revenue generation of the builders and also will give rise to higher tax outflow,” said Mr. Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India.

-By LNN (Liyans News Network)

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018: Home buyers will be acknowledged as tenable financial creditors.

June 6, 2018- a memorable day indeed from the home-buyers’ perspective. In its recent ordinance to amend the Insolvency and Bankruptcy Code (IBC), the Government of India has declared that henceforth home-buyers in ailing real estate companies would be recognized as financial creditors in the resolution process.

Corporate affairs secretary Injeti Srinivas confirmed that the ordinance would be one prime instrument for every single home-buyer to approach the National Company Law Tribunal to commence insolvency proceedings against a realtor. Based on the signed agreement between the buyer and the seller, if the real estate company goes under water, buyers will have to prove themselves as legitimate creditors in order to claim their rights as lenders.

The rules regarding buyers’ representation is soon to be published. As per the officials, there will be two agreements in some of the states in India; one for the land and the other for the house.

An official statement said: “The Ordinance comes as a significant relief to home buyers by recognizing their status as financial creditors. This would give them due representation in the CoC and make them an integral part of the decision-making process.”

Asking about the impact of this ordinance on the business of reality esp. on the home-buyers, the Chairman – National RERA Committee, National Association of Realtors, India, Mr. Mahesh Somani said, “This is undoubtedly a great move by the government to boost the morality of the home-buyers. Over the years buyers have been hackled by the realty stake holders in terms of deliverance and quality assurance. This one recognition will set them on a par with the banks during the proceedings.”

“Projects like Jaypee, Amrapali and many more that have reeling under the insolvency proceedings, with this secured financial creditor tag, respective home-buyers can now claim their interest during the resolution process and banks will ensure that in no way it would be compromised,” –  added Mr. Somani.

-By LNN (Liyans News Network)

Plagiarism acquisition against WB HIRA: Has Mamata Banerjee Govt. went on cloning central’s blueprint?

So far a lot has been said about the Real Estate (Regulation and Development) Act, 2016 (RERA). But still what remains untold is Bengal Government’s final take on this consumer-friendly Act.

The earlier speculations indicated that West Bengal Govt. might introduce the Housing Industry Regulation Act (HIRA) by the end of 2017. Around so much buildup stories, finally West Bengal Govt. has chosen to boycott the Act and decided to bring in its own set of law after two long years.

RERA came into action primarily to safeguard buyers’ interest and to save the country’s economy from the major harm caused by unregulated and unaccounted cash circulation from the second highest GDP contributing sector- Real Estate. The Act also was made to have a close track on the integrity parameter of the stakeholders.

Additionally, the recent amendment of the Insolvency and Bankruptcy Code (IBC) has further reinforced buyers’ authority and placed them on the same page with institutional leaders, in case the builder seeks for insolvency.

Still, many of the state governments have chosen to stand by the age-old seller- centric infrastructure, where builders used to have the lead role.

The central Act permitted states to tweak the paraphernalia barring the key provisions of the Act. Where most of the states have already established the Act, prioritizing the buyers’ protection fact; Bengal Govt. has chosen to start it from the beginning.

Yet, the state version of RERA is nothing but an inclusion of a few small, symmetrical changes in the central’s Act and it has left the builder’s body satisfied.

A couple of mention-worthy inclusions are:

  • State government holds the authority to declare under what condition/ which circumstances builders fail to deliver the projects on time.
  • West Bengal builders can use an open space inside the housing society for building flats or even they can sell it as parking lots without any institutional go-ahead.

“Government’s decision comes from an in-depth R&D. Undoubtedly, state builders will be benefited under this regime; but it would be interesting to see how the Act watches over the buyers’ interest,”- says Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India.

-By LNN (Liyans News Network)