As per the Department of Promotion of Industry and Internal Trade Policy, the real estate sector is the third largest sector in terms of FDI flow and is second largest employment generator along with being the third largest sector to induce economic growth. As per the same source, the real estate market is expected to grow to Rs. 65000 crore and is expected to reach US$ 1 trillion by 2030 while contributing 13% of the country’s GDP by 2025.
Having said this, we have to appreciate that the Indian Real estate has come a long way from its rudimentary concept of Zamindary system to creating Real Estate Investment Trust (REIT). Real Estate has seen it all; from phase of booming economy to recession. Being particularly prone to market sentiments and investment climate, it has gone through tough times.
Let us understand what were the major policy reforms which have helped the real estate sector reach where it is proudly standing as of today:
1. The RERA Act (Real Estate Regulatory Authority):
The real estate regulatory authority aims to control developers and brokers and protect home buyers. Under the RERA Act of 2016, every state agency is required by law to have an adjudicating bench and an appellate tribunal to handle complaints from homebuyers. RERA has impacted the real estate market by revamping the sector to make the developers answerable to the property buyers. Some revolutionary measures under RERA are:
- It is mandatory to register all real estate projects under RERA where the land is more than 500 sq. m or minimum 8 apartments are to be built. Also, the real estate developers have to submit details including project layouts, sanctioned plans from the Urban Local Body, exact location of the project with clear demarcation, number of parking spaces, unit areas, carpet areas etc. The real estate projects can only be marketed or sold once they are cleared and accepted by the RERA.
- It is mandatory to regularly update the construction progress of a particular project on the RERA website. The homebuyers can thus check the progress of the project online and get a clear idea on the scale of the progress. The developers have also to mention the number and types of units sold, completion schedule and details of litigation if any.
- Standardization of Sale Agreement is a remarkable feature of the RERA. The standard sale agreement will include all details including but not limited to the date of the possession of the unit, the internal and external development works, construction details and its specifications and many more details.
- Previously the carpet area was defined subjectively which lead to misunderstanding and confusions. RERA has defined the carpet area as the area between four walls and the price quoted for the said unit must also refer the same area.
- Defect Liability period of 5 years has been introduced by RERA where in the developer has to rectify all sorts of structural defects, issues arising out of poor construction quality. In all such cases, the developer has to compensate the buyer / buyers as per RERA.
- RERA has made the developer liable in case the property buyer does not get the complete possession on time which is promised as per the agreement.
- RERA ensures that the developer takes consent of 2/3rd property buyers in case any alternation is required in the sanctioned plan.
- Property Buyers, developers or promoters can lodge complaint in the RERA portal and RERA makes an effort to solve the case within a tenure of 60 days. In case any of the party is not satisfied with the RERA decision, they are allowed to file a complaint with the Appellate Tribunal within the next 60 days and can further appeal to High Court of Supreme Court if not satisfied with appellate tribunal’s verdict.
2. GST Reforms:
In March 2019, the GST on real estate with input tax credit was reduced from 18% to 5% for standard housing projects and 1% for projects for affordable housing helping in lowering building expenses for developers as well as logistics costs. Real estate developers can claim the input tax credit on construction inputs like labor, cement, bricks etc. the ITC was introduced to avoid tax on tax positions. Though the developers face issues as there is no provision to set off the increase in prices to claim ITC and that the input prices can change over time, which makes it hard to provide accurate estimates.
3. PMAY – Housing for all:
Under Pradhan Mantri Awaas Yojana (PMAY), around 30 million houses will be built in India by 2025. Four different types of programs were made available under the mission, addressing families in middle-class and lower-income groups as well as economically disadvantaged areas.
4. Real Estate Investment Trust (REIT):
The first REIT debuted in March 2019 giving the financially challenged real estate industry a lease of life. These publicly traded trusts enable small-ticket investors to invest in real estate as an alternative to corporate bonds or shares. REITs are currently only permitted for commercial real estate. It is anticipated that REITs will increase the demand for office space from the IT/ITeS, banking and financial services, logistics, manufacturing and consumer goods industries.
5. The Draft Model Tenancy Act:
This Act has been made available to the public by the Urban Development Ministry in 2019. The Act is meant to protect both tenants’ and landlords’ interests. The Model Tenancy Act aims at creating a vibrant, sustainable and inclusive rental housing market in the country. It will enable the creation of adequate rental housing stock for all income groups, thereby, addressing the issue of homelessness. The Model Tenancy Act will enable institutionalization of rental housing by gradually shifting it towards the formal market. The act proposes to have a RENT AUTHORITY which will have control and supervision over all registered rent agreements.
The Central Government of India has been instrumental in bringing in positive changes in the real estate market. Apart from the above, there are various other reforms required at State Level and also at National Level to further reform the second largest employing sector of our nation.