Here is all you must know about the new amendments in the Indian Real Estate sector in 2016:
1) Real Estate (Regulation and Development) Act, 2016
This bill was passed by the Parliament on March 15, 2016, and the Act came into force on May 1, 2016.
From a common man perspective, it was meant to address some of the pain points of a typical property buyer:
- What is the recourse when a project hand-over is delayed by the builder/promotor?
- How does one verify that a specific property meets the statutory norms as set by the local civic bodies?
Hence the Real Estate Regulation and Development Act was introduced to help the common man. Its primary goal is to bring tighter regulations into the system, thereby bring transparency and accountability to the whole home-ownership experience. The Act applies to both residential and commercial real estate projects.
The basic principles and vision for this Act were drafted by the Center, and then for each of the states to individually set up a Real Estate Regulatory Authority (RERA), an Appellate Tribunal and RERA Rules. Such a set-up was aimed at safeguarding a property buyer’s interest.
Latest Developments- Uttar Pradesh, Madhya Pradesh, Kerala and Gujarat have already notified the rules in their respective states. Since the other states have not yet notified the rules within the stipulated timeframe, the deadline has been extended to May 1, 2017.
To know more about the Act, click here.
2) The Benami Transactions Amendment Act, 2016
This Act was introduced to eradicate tax evasion and money laundering [aka black money] in the real estate sector. The earlier Act was not fully successful in this regard due to lack of defined procedures; hence the Act was amended.
The Benami Amendment Act came into force on November 21, 2016, and it aims to provide a stricter definition of a Benami Property, the roles and responsibilities of adjudicating authorities, and an Appellate Tribunal to deal with Benami transactions.
This Act now empowers government officials to impose penalties, and if required, confiscate Benami properties.
Latest Developments– As per the updates reported from the Income Tax Department, at least 87 cases and their corresponding attached 42 properties have been issued notifications under this Act.
To know more about the amendment, click here.
3) Demonetization of the certain Indian Currency Notes
The Government of India demonetized the ₹500 and ₹1000 notes on November 8, 2016. Its subsequent implementation has had a huge impact on Indian economy, by way of unearthing black money in the system; which also impacted the real estate sector.
As outlined in our earlier article on this topic, some unscrupulous property transactions used to be prevalent where a property value was artificially deflated on a sale deed to avoid paying Capital Gains Tax on the true [i.e. Higher] value of a property. The buyer was then expected to compensate this “loss” by paying the balance in cash. This not just meant that the revenue department lost money, but equally important, this cash component was now “converted” into black money – meaning, it was no longer accounted in the system.
An immediate consequence of demonetization was the dearth of cash in the system, which impacted such conversions of “white” money to “black”, thereby reducing such illicit transactions.
Latest Developments– Demonetization helped homebuyers indirectly, as some developers/sellers saw a drop in sales, and tried to compensate for this dip in demand, by offering price-cuts; especially for those projects where construction was underway.
Another positive side effect was that banks, which were now rich with cash deposits, were happy to offer reduced home loan rates.
To know more of the impact on real estate, click here.
4) Akrama Sakrama Scheme
The Akrama Sakrama Scheme was introduced by Karnataka government to enable the regularization of properties that had violated building norms. The unauthorized constructions were not on records due to which the government was facing issues in the collection of taxes, resulting in significant loss of revenue.
The scheme was first introduced by the Karnataka Government on December 31, 2013, only to be challenged in the High Court. It eventually came into effect, after the High Court dismissed these petitions on December 13, 2016.
Latest Developments- The government was accepting applications until March 23, 2016. Furthermore, the Government has conducted training and framed instructions for all the municipalities/ local authorities to assess such violations.
To know more of the impact on real estate, click here.
5) Goods and Service Tax (GST)
In India, there are many direct and indirect taxes imposed on goods/services; right from its manufacture, to its sale, and its eventual consumption; at a central and state level, thereby unrealistically increasing its overall cost to the end user.
To mitigate this burden, the Central Government proposed GST. It combines central excise duty, additional excise duty, services tax, state VAT & entertainment tax under one banner.
It was introduced as a Constitutional Amendment in 2016 and is expected to come into force on April 1, 2017.
The implementation of GST will have a significant impact on the real estate sector where a property that is under construction, is taxed under VAT and Service Tax. The GST will replace all these with a single tax, which shall in the long run reduce the overall cost of home ownership. The stamp duty and registration fees however, will be outside the purview of GST.
Latest Developments- In November 2016, the GST Council agreed on having a single tax-rate for all goods and services. The Council also recommended the Central Government to compensate the States for any revenue loss during its implementation.
6) NGT Extends Buffer Zone
Recently, the National Green Tribunal (NGT) has issued guidelines to the Karnataka Government to adopt the below while approving a sanction plan:
- No construction is permissible within 75 meters from the buffer zone of the lake beds
- No construction is permissible within 50 meters from the border of Primary Storm Water Drain; 35 Meter from the Secondary Storm Water Drain Border; 25 Meter from the Territory Storm Water Border
Latest Developments- Pursuant to the order of NGT, the Karnataka government has issued circular dated 17/05/2016, directing the BDA, BBMP and other concerned authorities to implement the guidelines of NGT while granting permission for change of land use or approving the building plan.
7) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFASEI) Amendment, 2016
Typically, debt recovery has been slow and sometimes ineffective, which led to delays. This amendment was introduced on May 11, 2016 [and came into force on September 1, 2016] to tackle bad debts in the banking system by fast-tracking the recovery process for banks and other financial institutions.
Through the implementation of SARFASEI, banks can now take possession of a property that was put up as collateral towards such loans; and auctioned off in the event of non-payment of such loans.
A negative side-effect of such bank auctions, if conducted too frequently, is that such auctions often undervalue a property in the interest of recovering money quickly, thereby artificially deflating the market rate of that locality. This in turn, negatively impacts the property valuation of other owners in that locality.
With ever changing norms and rules, as a residential property buyer, its best to check the property documents before buying a new property. To verify the documents of property you own or plan to buy, download the RealDocs App (Your Personal Property Lawyer on a Phone) from Google Play Store!