Impact of Demonetization, RERA and GST on Real Estate Industry in India

Today Real estate sector is facing lot of challenges because of central government various new rules. Central govt. announced demonetization in the month of Nov’ 2016, after demonetization this sector slumps down and has not yet recovered and there is no regular sale. No new big projects are being launched anywhere. If the scenario continues, this would create huge unemployment, as no builders would take the risks and to new projects.

When Real Estate Sector started showing some positive vibes RERA and GST is coming into effect to affect the Real Estate Industry. As a real estate professional, we have noticed there are hardly big project has been launched & almost all the builders are getting afraid from the same. Real Estate Sector already facing no growth at all from the last 2-3 years and we do not predict the future because of RERA & GST which is being implemented from 1st July 2017 across the country. GST seems very nice to listen only one tax in India i.e. goods & services tax, but do not know how will it be implemented in certain sectors. GST is 12% on agreement value in Real Estate sector which is 6.5% = (12-(4.5+1)) % more than the earlier tax (service tax & VAT). This means simply property prices will shoot up by 6.5% with no reasons. Means, builders will be in profit, but consumers may have to pay more after GST.

Some of the experts stating that even after these difference this sector will be non-impacted, very positive experts, these experts are simply saying builders will get input credit for building material and these input credit has to pass on to customers. Currently, tax on raw materials is around 18-28% tax which will be 12% post GST. But, input tax credit surplus is unlikely to be refunded to the builders. So, there would be more credit and less liability to builders. As of now, no one has given inputs that how to pass on input credits to customers?

Hardly anyone is interested to launch a new project in the current scenario. Projects that are under constructions, builders are trying hard to even meet the break-even and get back their investments. Because of RERA builders cannot afford to delay their project, since huge penalty on delay project. And the project which is already delayed will be also under purview under RERA. If builder could not complete their project, how builders can complete their project after so much of penalty and that is in such a negative scenario in Real Estate industry.

If really government wants demonetizations, RERA, GST, Housing for All, PMAYS etc. rules/schemes to be successful, government must do following things:
1. Single window clearance for all the projects
2. Increase/maximize the FSI/FAR/TDR, etc.
3. Remove the Red-Tapism
4. Minimize the costing & lengthy processes of getting sanctions/approvals of the project
5. Transparent systems to get sanctions & approvals
6. Encourage affordable housing schemes in all the states
7. If possible, government should launch the affordable housing project alone or PPP basis
8. Equal rules for both sanctioning authority & builders in case if deviations or delay in case of project approvals

I have two queries and not getting answers of these queries.

1. For ongoing project which has been almost 60-70% work is completed in last 2-3 years, where builders have conserved the remaining building material to complete the project. Now how and what percentage should builder pass on the input credit to customers?
2. If builders have to pass on the benefit to customers, builders may increase the rate & give disc. to show the benefits passing on to customers. So, where is the benefit to customers because of GST?

Crux of the Demonetization, RERA & GST:

1. Economic slow down
2. Creates unemployment
3. No property demand
4. Property price hike
5. Every one confused for taxes
6. Delayed project will be more delayed and finally stopped the project
7. More taxes to pay to govt.
8. Houses for no one LIG, MIG or upper strata of the society
9. Real Estate industry will not recover if continues for infinite time

Happy Reading!!!