Category: Indian real estate

Important Facts to Look For in The Real Estate Bill

The real estate industry has cordially praised the amendment of Real estate (Regulations and Developments) Bill in 2015 approved by Union Cabinet. This bill has been introduced to unite the regulations and environment in the industry. The main motive of the bill is to provide the best services to the buyers and investors by giving the possession on time and fastest project deliveries, proper and effective redressal of customer grievances, safe and secured investments and maintained growth in the realty sector

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Some featuring facts which are favorable for the homebuyers in the unauthorized market are discussed below-

Regulations of real estate projects and agents- A disordered realty sector has many small association developers and agents who are willing to expand themselves day and night. There was no organizer or any association who can control and regulate this disarranged industry. There was a lack of laws and rules which can stop the immoral activities of developers to save the buyers interest and hard-earned money. The bill is now introduced to bring the stakeholders under the regulations where they can suffer from 3 years imprisonment for developers and 1 year for agents for not obeying the laws.

Escrow amount limit increase- A developer uses a temporary account to stop the outflow of funds from one project to another. This account is called the escrow amount. After the introduction of the bill, the developers are bound to keep 70% of funds in escrow amount. Though some of the developers welcomed this measure and some have criticized it.

Disclosures of information are compulsory– A common phenomenon in the real estate is homebuyers are not being provided with full information about the projects. The amendment now made it compulsory for the developers that they should convey every information about the projects including layout plans, floor plans, and registration of the projects, details of the architect agent and contractor which will make property dealing transparent.

Weighing consumer opinion– After the amendment of the bill, the promoters and developers are being restricted for making changes in the project specifications without taking the consent of the buyers and investors.

Simplify the grievance redressal– The bill ensures that the grievances which are raised by the buyers will be solved and settlement of the disputes will be done by forming Appellate Tribunal by appointing adjudicating officers. The customers can appeal in the district courts in 644 consumer courts. This process will decrease the expenditure and consume less time for redressal.

Buyers can plan to invest in Flats In Rajarhat as the projects are capable to deliver the possession on time and all the apartments are made with good interiors.

SC bars construction work in SWM-failed states across the country

States that have missed the boat to formulate their respective solid waste management policies are going to have a harder payback this time.  On this Friday, a bench of Justice M B Lokur and Justice S Abdul Nazeer issued a strong writer order against these states and UTS.

What is there in this order?

The order sets the barricade around the upcoming and on-going construction works across these states and UTS which have failed to formulate their solid waste management (SWM) under the Solid Waste Management Rules 2016. These states are not allowed to commence their construction works until they codify their SWM policies.

How does it act on the states’ revenue?

It seems that states have been either delaying or chose to remain unresponsive after the release of the order back in the year 2016.
Now if states continue with the same limp demeanour, it will definitely bruise the revenue of the state from the real estate sector.
At present, it also takes a toll on the modus operandi of the very section as well.
What are the consequences that the real estate sector has to accost?
Sometimes well-meaning plans can bring undesired opposite results. We have seen this in the recent past when the country had to go through a severe cash crunch post demonetization when the mean objective was to eradicate the black money circulation in the credit flow. Common people had to suffer a lot and real estate was one worst-hit sector in those days.
SC has prohibited construction works in states and UT’s including Maharashtra, Madhya Pradesh, Uttarakhand, Chandigarh and Goa for their “pathetic” attitude in not framing proper policy on solid waste management without speculating the aftereffects.
“People have already spared enough strolling along with the free will of developers and realtors. After RERA came into the frame, they finally gained the relief of faith that their hard-earned money won’t get lost in the whirl as they permanently received a legal platform where they can lodge the complaint against the counterfeit activities of the real estate state holders. RERA also brought up the assurance that the project deliverance would be on-time along with the quality check. The recent order of the Apex Court is challenging the regulations of RERA in a straight line,” said Mr Mahesh Somani, Chairman – National RERA Committee, National Association of Realtors, India (east zone) and Vice President of RECA Kolkata.
“If the construction work gets halted somehow, how would the homebuyers get their project delivered within due time maintained under RERA rules where this time they can’t even blame the developers for the delay? The recent speculation would further add to their troubles, where states have chosen to stand by the order of the Supreme Court on its banning on construction activities in the states unless any solid waste management policy has been settled. This move of the states would certainly take a dig on the shield of buyer protection ACT RERA and buyers will be highly in doubt about the actual functionality of the ACT,”- added Mr Somani.
Of course, sanitization is crucial; states should definitely come up with a proper policy of the same. Meanwhile, banning of construction works happens to be a dry run for the effectiveness of the RERA regime. Let’s see how the states RERA Authorities deal with the situation.

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.

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)