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Demonetisation has Beneficiary Long Term Impact on Real Estate with Initiatives of RERA and GST

The transparency brought in by demonetisation, aided by RERA, GST reforms and liberalisation of FDI norms, has boosted the performance by fair Real Estate companies.

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Long Term impact on Real estate
Long Term impact on Real estate has been depicted by Demonetisation.Wikimedia.
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New Delhi, October 4: Though the government’s radical measure of demonetisation has disrupted the economy and has hit the real estate sector — already reeling under prolonged slowdown — it will turn out to be a blessing in disguise in the medium-to-long term.

As an asset class, real estate has been a big source of generating and consuming black money. The cash component in real estate has been there at various levels, beginning with land transactions where it amounts to 30-50 per cent. The cash payout is quite high in luxury housing too. The consumption of cash has been as high as 30 per cent in secondary market transactions.

The primary market transactions, however, are by far bereft of cash component as home purchases are financed through loans from banks and housing finance corporations. It is another matter that even in primary market deals, developers have been encouraging cash payouts by luring property buyers with good discounts on property price.

The speculative buying by investors through offerings like underwriting and pre-launches has also been involving cash payout, leading to artificial price hike and in turn making homes out of the reach of masses.

Demonetisation, coupled with the government’s move to check benami transactions through legislation and curbs on cash transactions, was meant to clean up the system.

This sudden ‘shake up’ was, however, not without its adverse impacts. Demonetisation badly affected the liquidity in the capital-intensive real estate sector, deepening the problem of massive fund shortage/cash crunch faced by developers reeling under delayed deliveries, which deterred buyers from purchasing property.

long term impact on Real Estate
There are long term impact on Real Estate due to Demonetisation. Pixabay.

The impact was more evident in markets like NCR and Mumbai which were largely investor-driven, compared to southern markets of Bengaluru and Chennai and even Pune in the west, which have been end-user driven. The premium/luxury residential segment, in which the cash component was more in transactions, got impacted by demonetisation.

Real estate experts’ belief that the impact of demonetisation is only short-term and will not have long-term impact, stems from the fact that developers who have been following transparent and fair practices have not been affected by demonetisation and instead it worked out to their advantage.

This also turned out to be a positive development for big global real estate consultants like JLL India which doubled its profits in 2016 over 2014-15, with 60 per cent revenue growth.

One key positive impact of demonetisation and RERA (Real Estate Regulation Act) has been that speculative investors deserted real estate and end-users/genuine buyers, who were all these years pushed to the sidelines, came out in large numbers. Now, it is the property consumers who are driving the real estate market, especially residential market, aided by the government’s pro-industry and pro-consumer initiatives.

The step to promote affordable housing and according real estate industry status for the purpose of making easy and cheap funds available to the sector also helps.

Demonetisation has particularly boosted foreign funding. The transparency brought in by demonetisation, aided by RERA, GST reforms and liberalisation of FDI norms, has boosted the confidence of foreign investors, which is clearly evident from the spurt in foreign investments, particularly from pension funds.

This will inject much needed liquidity in the sector starved of funds. Targeting consumers, the government under the Pradhan Mantri Awas Yojana (PMAY), is providing substantial interest subsidy to home buyers. The clampdown on floating cash in the system has contributed significantly to curbing inflation which, in turn, helped RBI in cutting interest rates, thereby boosting home buying.

The proposed measures to liberalise FSI norms and rationalise stamp duty, will give further fillip to the residential sector, particularly affordable housing.

Demonetisation had a salutary impact on property prices by curbing cash transactions and checking speculative pricing, in turn increasing affordability, which is a key to achieve the government’s flagship mission of ‘Housing for All’. RERA & GST are further aiding demonetisation to control prices.

long term impact on Real Estate
Demonetisation aided with RERA and GST will put long term impact on Real Estate. Pixabay.

The key provisions in RERA, to speed up project completion, by checking diversion of funds through mandatory escrow account, stringent penalties to check project delays, together with the government’s move to make all building sanctions online, will go a long way in checking time and cost overruns of real estate projects, thereby controlling home prices.

The ban on pre-launching of projects under RERA will also check artificial spurt in pricing. GST has come to tackle the flow of cash in the purchase of building materials by introducing input credit tax. Further, the government’s plans to liberalise FSI norms, especially for affordable homes, and rationalising stamp duty will have a sobering effect on property prices.

But for some little lingering effect, economists and real estate experts believe that the overall downside impact of demonetisation has faded and its impact is not going to be there in the next quarter.

Says Ashwinder Singh, formerly CEO of JLL India & now CEO of leading real estate consultancy, Anarock Consultants: “Other than in terms of the initial confusion-induced decline in sentiment, the trend that is emerging now, points towards a recovery in buying sentiment with serious buyers already returning to primary markets.”

The entire demonetisation exercise undertaken by the government and aided by other reforms, like Benami Property Act, RERA and GST, is to be looked at in the backdrop of the government’s multi-pronged policy to create institutional and regulatory framework for speedy and steady growth of the economy. And at the centre of all these initiatives is real estate, which is a key contributor to GDP. Going forward, these policy initiatives will help make real estate more organised, transparent, credible and affordable, making the sector investor and consumer friendly. (IANS)

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GST Council to Introduce New Method of Return Filing in Six Months

"The committee will examine how these contingencies to be addressed by the GST regime. Its constitution will be announced in the next two days," he said.

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The GST Council on Friday decided to roll out in six months a new method of filing monthly returns and to take over ownership of the GST Network (GSTN), even as it deferred a decision on imposing a sugar cess and allowing an incentive for digital payments.
GST in India, Wikimedia commons

The GST Council on Friday decided to roll out in six months a new method of filing monthly returns and to take over ownership of the GST Network (GSTN), even as it deferred a decision on imposing a sugar cess and allowing an incentive for digital payments.

Briefing reporters here following the 27th meeting of the GST Council, the Chairman and Union Finance Minister Arun Jaitley said the Council had decided to set up two separate groups of five Finance Ministers of states to give recommendations both on the imposition of a cess on sugar as well as a 2 per cent incentive for making payments digitally.

“The GST Council discussed the change in ownership structure of GSTN. As per the original structure of GSTN, 49 per cent is held by the government and balance 51 per cent by other entities,” Jaitley said.

“I had made a suggestion that this shareholding of 51 per cent should be taken over by the government and divided equally between the states and the Centre.

“Eventually, the central government should hold 50 per cent and states will hold 50 per cent collectively. The collective share of states will be pro-rata divided among them per their GST ratios,” he added.

The GST Council on Friday decided to roll out in six months a new method of filing monthly returns and to take over ownership of the GST Network (GSTN), even as it deferred a decision on imposing a sugar cess and allowing an incentive for digital payments.
GST Filing, Pixabay

Noting that sugarcane farmers are in deep distress due to rise in costs, Jaitley said the Council decided to constitute a group of five ministers within two days to make a recommendation on ways to meet contingency arising when the cost of a commodity is higher than its selling price. The committee will submit its report within two weeks keeping in view the urgency of the matter, Jaitley said.

“The committee will examine how these contingencies to be addressed by the GST regime. Its constitution will be announced in the next two days,” he said.

A separate group of five ministers from states will be constituted in two days to recommend a 2 per cent concession, subject to a ceiling of Rs 100 per transaction, to consumers if they pay through digital modes. This report will be submitted before the next GST Council meeting.

“The issue before the council as whether on digital payments through either the banking mode or the cheque mode or any form of digitised mode, a two percent incentive should be given to those who pay entirely through digitised mode. This would be subject to a cap of Rs 100 per voucher and would not apply to the composition dealers,” the Minister said.

Also Read: To Review The Existing Framework of MIIs, SEBI Puts Forward Higher Regulatory Requirement

The Council on Friday also approved the new simplified model of filing returns, to be implemented after six months, providing for one monthly return for all taxpayers, except composition dealers and those with nil tax liability.

“Composition dealers and dealers having nil transaction shall have facility to file quarterly return,” Finance Secretary Hasmukh Adhia said elaborating on the new model.

He said the six-month transition phase is required to get the new software ready, during which the present system of filing GSTR 3B and GSTR 1 returns would continue, adding that taxpayers could continue to claim provisional credit in this period. (IANS)