Real Estate sector in India has grown tremendously due to the burgeoning corporate environment, demanding office spaces as well development of urban and semi urban spaces.
The construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.
What is the Market Size of real Estate Industry?
Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13 per cent of the country’s GDP by 2025.
The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces.
According to Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 25.04 billion in the period April 2000-March 2019.
Issues and challenges in real estate sector
Real Estate (Regulation and Development) Act, 2016 (RERA)
To address the numerous concerns of the real estate industry, the RERA was enacted in 2016. It was brought in to ensure protection of allottees and thereby provides for rights of allottees or buyers as well as ensures the duties and responsibilities of promoters or agents in this regard
Enacted in March 2016, all the provisions of RERA came into effect in May 2017.
First Real Estate Regulator:
It established the first real estate regulator, and mandates all states and union territories to form rules governing the regulator.
RERA is not a central authority but a state-wise Regulator.
Purpose – Protection of Buyers:
Enacted to ensure protection of home buyers and allottees against the corruption of the promoters.
RERA was brought in to ensure the protection of allottees and thereby provides for rights and duties of allottees or buyers as well as the duties and responsibilities of promoters or agents in this regard.
Provides a specific list of key words and description to make buyers aware of the terms that agents and promoters could use to manipulate them into wrongly buying a house.
Registration of projects exceeding site area of 500 square metres is mandatory with RERA which consequently protects subsequent buyers and allottees from malpractices of the promoter/developer.
RERA explicitly mentions that promotion or advertisement of projects before registration is not permitted and hence ensure complete transparency with relation to execution and promotion of projects.
It also mandates that the promoter declares the period within which the project may be completed so as to ensure no delay in handing over to allottees and buyers.
Establishes a consumer redressal forum, that consumers can approach instead of the National Consumer Disputes Redressal Commission (NCDRC) under the Consumer Protection Act.
In order to file a complaint with RERA, home buyers need to confirm the following:
The state in question must have implemented RERA and assigned a real estate regulatory authority
The project in question needs to have been registered under RERA
The forms prescribed by the state must be filled out completely
The complaint must be filed as soon as possible
An additional grievance redressal forum available to home buyers is the National Company Law Tribunal (NCLT). Home buyers have been categorized as financial creditors under the Insolvency and Bankruptcy Code (IBC) which allows them to be treated similar to banks and other financial institutions that have lent to the builder/developer.
Earlier, homebuyers were included under unsecured creditors, however, the Supreme Court ruled in August 2019, that homebuyers must be classified as financial creditors. The IBC was also amended to this effect. This has sped up the process for homebuyers to recover their investment.
Other Initiatives to boost the Real Estate Sector
In February 2018, creation of National Urban Housing Fund was approved with an outlay of INR 60,000 crore (US$ 9.27 billion).
Benami Transaction Act, 1988: Amendments to the Act in 2011 and 2016, seeking to more comprehensively enforce the prohibitions against illegal Benami transactions.
Alternative Investment Fund (AIF): An AIF of ₹25,000 crores has been approved by the Government to revive stalled affordable and middle-income housing projects across the country.
Under the Pradhan Mantri Awas Yojana (PMAY), more than 8.09 million houses have been sanctioned up to May 2019.
Relaxation of Extra Commercial Borrowing (ECB) Guidelines: to facilitate the financing of housing sector who are eligible under PMAY in consultation with RBI.
Housing Building Advance: To encourage government servants to buy new houses, the interest rates on House Building Advance will be lowered and linked with 10-year government-security yields.
GST Rate Cut:
The government has reduced GST rates to a marginal 1% for the affordable housing project and 5% for under-construction houses.
Builders also receive tax inputs under the GST Act.
The lower tax burden on home buyers will likely increase demand in the segment which, in turn, will keep developers committed to build more affordable homes.
The government needs to adopt a strategy of optimising opportunities rather than penalising developers in order to complete stalled projects.
AIF funding must be directed toward developers genuinely willing to complete stalled projects and handover possession to buyers within the stipulated time frame.
Infrastructure status to housing segment may lead to flow of funds at cheaper rate and can significantly help in tackling liquidity crunch but government needs to be cautious that fund flows to affordable housing sector only.