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This Bold Move By The Government Can Make Housing Affordable   Dec 04, 2017

HousingHistorically, Indian real estate sector has been infamous for bullying home buyers and flouting the law. Builder-political nexus made real estate sector the most fertile land for black money creation and the storehouse of unaccounted wealth as well.

With the implementation of Real Estate Regulation and Development Act (RERA), the present Government conferred upon more bargaining power to the home buyers. As you might be aware RERA has made real estate developers more accountable. The days of builders diverting funds collected for one project to another, deliberately delaying the construction work and harassing buyers over the payment of unjust charges under various heads are over. RERA has made stringent provisions against all such misdeeds.

But you would be surprised to know, despite a rigorous law being in place, builders have been stubbornly holding up property prices very high in many real estate markets across the country by hoarding a pile of real estate inventory with an aim to sell it at a higher rate in future.

As per the estimates of Liases Foras—one of India’s leading independent, non-brokerage real estate research firm—Indian real estate sector had an inventory of 765 million square feet by the end of June 2017. In other words, nearly 7.6 houses are still vacant due to high prices.

This is likely to change soon.

Modi Government has decided to come down heavily on the unwarranted profiting motives of real estate developers. Based on one of the recently passed Court order that upheld the stance of the Income-Tax (I-T) Department to treat the unsold flats as deemed to be let out property, builders may now have to declare a notional income on the real estate inventory (which they showed as stock-in-trade in their books until now). The Finance Ministry is looking at it as an avenue to raise its revenues.

Moreover, the Government is planning to make the linkage of Aadhaar to the property registrations mandatory.

What’s the impact of these announcements on the real estate sector?

Property prices are likely to fall if both these plans get executed as expected.

If the I-T department starts recovering tax on the notional income of real estate developers, builders will find it difficult to hold onto the unsold inventory for very long. This, in turn, would make them sell inventory faster and perhaps bring down property prices.

Moreover, linking Aadhaar to the property registrations will help draw out black money from the real estate sector and curb the benami property transactions.

This dual-action plan would be a double-whammy for builders indulging in malpractices.

It’s interesting to see if the Government takes up this issue and deals with it decisively in the Budget 2018-19. This being the last full-year budget before we head for 2019 Lok Sabha elections, the Government may try to take tough decisions.

Furthermore, as India’s fiscal deficit has already touched 96% of the threshold limit set for the current fiscal in October, the Government may try to shore up its revenue by imposing a tax on the real estate inventory in the next fiscal.

What should buyers do?

Besides, affordability while exploring a property, do thorough background checks considering the following:

  • Who is the builder?
  • Has he registered under RERA
  • Is the builder listed or recognised by the housing finance company (in case if you want to avail a home loan facility)
  • What has been his track record?
  • Has he completed the construction of his projects as per schedule?
  • Quality of Construction
  • Visit the site and inspect the quality of construction
  • The rate which he is offering for the amenities
  • You may also visit other sites developed by the same builder just to check whether he has fulfilled all promises made and offered amenities as promised
  • Title of the property on which the construction is taking place or has taken place (to ensure that it free from any encumbrances and litigations and save you from inconveniences in the future)
  • Has he obtained all statutory permissions
  • In case of on-going construction, when the possession will be obtained
  • In case of a ready property - i.e. newly constructed or a resale property, has a society being formed and age of construction of the property

PersonalFN believes if you are buying a primary house i.e. a house to shift and live with your family, anytime is a good time to buy. But ensure that you are carefully and smartly evaluating your options. After all you don't wish to get into a 'Campa Cola' (society) like situation and be left in lurch when you have moved in with your loved ones. 

If you are looking at investing in real estate, probably taking cognisance of the present property market and your financial circumstances would be appropriate before you strike a deal.

Investing in real estate is a big decision, so ensure you do it thoughtfully with apt planning.

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