Demand for Semi Luxury Real Estate in India May Stall

The demand for much of the middle premium range of real estate in India may fall in the coming few months thanks to the layoffs of middle management employees. Over the past month, IT industry leaders have expressed that to remain globally competitive will require them to hire employees overseas rather than from India.

Outsourcing Jobs to India

Over the past two decades, Indian IT companies grew rapidly on the back of a large and well trained workforce. Such a workforce could be deployed for work at client’s site overseas at a fraction of the cost the client would have to pay to hire workers onshore. The term offshoring became a buzzword that was heard usually in the context of India.

Well trained Indian engineers would usually work at a fraction of the cost of foreign workers. Outsourcing became such a concern among educated American and European techies that they told the generation still in school not to pursue a technical degree because in all likelihood, their job would be done by an Indian at a fraction of what they would have to be paid.  

Indian Techies Living Large

Many mid-level Indian techies earn between 20 to 60 lakhs per annum and make up a significant bulk of buyers of semi luxury properties in India. Most such working professionals are between the ages of 30 to 40. Because such workers earn a large income at a relatively young age, they make up the biggest segment of buyers of flats priced between 4,000 to 7,500 rupees per square foot.

Risks Looming Large

In addition to the protectionist policies of important foreign markets which are harming Indian IT companies; Indian IT companies are also suffering due to a large number of jobs being automated and by the advent of Artificial Intelligence.

Cities such as Pune and Bangalore depend on mid-level technology workers for job creation and to spur demand for office and residential real estate. This makes such cities especially sensitive to layoffs of mid-level IT workers.

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There are nearly 16,000 Indian IT companies that employ close to forty lakh tech workers. Today middle management is such companies is particularly at risk of layoffs because many in this working segment have skills that are less irrelevant today. Employing workers in this segment is also more expensive for IT companies who require the skill sets of fresh graduates yet may be able to do without such a large middle management.

Impact Upon Real Estate

If there is a meltdown in the Indian IT sector, then many in the middle management may be the first to go. This would lead to a fall in the demand for semi luxury and even luxury properties in the country. According to this property site, there is a significant possibility that a recovery in the mid premium real estate sector will be delayed.

Tax Rebate to Owners of Property in Ahmedabad Leads to More Revenue

The owners of property in Ahmedabad provided the Ahmedabad Municipal Corporation (AMC) with more revenue than they did in the same period last year. Between April 1 and May 15 of this year, the AMC earned revenues from property tax of 282 crore rupees, over 23 crores more than it had earned during the same period last year.

Attracting Defaulters to Pay

Though the AMC earned a higher income this quarter than it had during the same period last year, it wasn’t due to the eagerness of a larger number of homebuyers to pay their dues. Rather, the larger inflow of tax revenue was spurred by a ten percent rebate offered by the AMC to all defaulters who chose to clear their dues. Hence, the Ahmedabad Municipal Corporation earned an additional 24 crore rupees of tax revenue over what it had earned last year because many defaulters choose to pay during the beginning of this financial year. On an even more positive note, the AMC also earned 1.6 crores in professional tax during the same period mentioned.

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While officials in the AMC acknowledge that the larger collection in property tax was due to the ten percent rebate offered to defaulters, they are unsure why there was an increase in the amount of professional tax they were paid.

Region vice Breakup and Income

Officials at the authority have stated that the West Zone and New West Zone which include regions such as Satellite, Bodakdev, Memnagar, and Ranip together accounted for a fifty-nine percent increase in revenues earned by the authority thus far this quarter. The AMU earned 14.08 crore rupees more in tax revenue this year from the localities mentioned than it had earned in the same period last year from these localities.

The regions in the West Zone of Ahmedabad mentioned above are among the most highly sought after in the city. Rates in the locality of Satellite, based on real estate trends in Ahmedabad, are easily valued in excess of four thousand five hundred rupees per square foot. In certain regions of Satellite, prices are known to exceed five thousand five hundred rupees per square feet.

When we break up the collection further between these regions we find that Ahmadabad’s Municipal Corporation earned 7.37 crore more from the New West Zone this year than it had during the same period last year, and earned 6.27 crore more from the West Zone this year than it did during the same time last year.

The West Zone and New West Zone together accounted for sixty-three percent of the taxes collected by the AMC.

What to Make of It All?

It seems that aside from saving money by paying a lower property tax, tax defaulters also signalled to the AMU that tax rates are too high. A ten percent tax rebate is not tremendously large, yet it was sufficient to lead to a tax collection amount that was a little more than ten percent of that earned last year. AMU authorities and builders and developers in Ahmedabad may take note; a ten percent property tax rebate leads to a ten percent increase in the amount of tax collected in Ahmedabad.

 

 

What Has GST in Store for Those Eager to buy Property in India?

Home buyers who purchase a best property in India after the introduction of the GST are unlikely to suffer from any additional tax burden than are buyers who purchase a house before the GST is introduced. The GST will have a partial impact on the price of property in the country as work contracts in India will be levied a tax rate of 12 percent. According to experts, the 12 percent tax rate levied on work contracts under the GST will not have any impact on the price of houses in India.

Indirect Taxes on Real Estate

Currently, three key indirect taxes are levied on houses in India. These are excise duty; value added tax, and service tax which total between 9 to 11 percent of the price of the property. Stamp duty is an additional tax yet being a state tax, its rate varies from state to state. The first three taxes mentioned will be combined into one single indirect tax under the GST regime. One of the key strengths of the GST is that it will lead to the removal of cascading taxes. Under the new GST regime, builders will be allowed input tax credit which will lower the taxes they pay. However, developers in India are still waiting for clarity from the authorities on the abatement rate they will be charged on the land they purchase for a project.

How GST Will Impact Real Estate

Excluding taxes paid as stamp duty, realestate in India is currently taxed at rates lying between 9 and 11 percent. As the GST is expected to tax property at a rate of 12 percent, after the GST comes into force, houses are unlikely to cost more than they do today. According to leading property websites in India, the price of houses post the GST rollout is unlikely to rise.

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The Goods and Services Tax is also expected to widen the government’s tax collection base because, under the GST, the entire industry will be awarded an input tax credit. Authorities believe that awarding the entire industry with an input tax credit will provide a strong incentive to builders to come under the government’s tax net. Furthermore, as more businesses and traders come under the government’s tax net, it will lower the amount of cash in the country’s economy.

Benefits of Buying Under Construction Property Today

Home buyers interested in buying a house will benefit from buying property that is still being built today because after the GST regime is implemented, the property is likely to cost less. This is so because builders are constructing properties today, which when they sell, they will be able to receive a tax credit on under the GST regime. According to this property website, once the GST is in place builders shall receive a tax credit because excise tax and central sales tax on construction materials will be offset against indirect taxes collected from homebuyers.

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Affordable Property in India Leads Realty Markets From the Front

A recent survey has revealed that demand for best property in India has risen in the 2017 fiscal year. Affordable property made up fifty percent of new home sales during the October to December quarter of 2016.

What Makes a House Affordable?

Houses that cost less than fifty lakh rupees fall under the category of affordable houses. During the third quarter of the 2017 fiscal year, affordable houses made up the bulk of the share of residential houses sold in the nine largest cities in India.

Urban Regions Leading Demand for Affordable Houses

The cities covered by the survey included Mumbai, Noida, Pune, Bangalore, Chennai, Gurgaon, Ahmedabad, Kolkata, and Hyderabad. Of all the new real estate launched in the mentioned cities during the third quarter of the fiscal year 2017, affordable houses make up sixty percent.

Factors Resulting in Greater Demand

Real estate industry experts and commentators on some of the top ranked property websites in India have stated that the main reason more affordable houses are being built and sold is that there is growing demand for such houses. The government’s actions have also led more consumers to buy an affordable house than otherwise would have. Private players, by increasing their participation in building affordable houses, have played a role in increasing the supply of affordable houses in the recent past. Cities such as Pune, Gurgaon, Noida, and Bangalore have more demand for affordable houses than most other cities in India.

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The Governments Role

Policies enacted by the central government have played a key role in stimulating demand for affordable houses in India. Its policies are geared to lead to the construction of three crore new houses in India that will be home to families that fall under the Economically Weaker Sections and Lower Income Group. The three crore houses for the EWS and LIG households are expected to be completed by 2022.

Laying the Ground Work

Many builders sense a great opportunity to earn profits for themselves from government policies tailored to lead to the construction of thirty million new houses in urban centers in India. More than a few private developers are expected to explore the chance to fuel sales by building affordable houses. Experts with intimate knowledge of the real estate industry are confident that builders will be able to build and sell affordable houses at favorable prices. Government authorities and many leading commentators on real estate sites have stated that the role played by private players will be crucial in closing the current gap in demand and supply of affordable housing in urban regions of India.

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Four Guidelines to Follow Before You Buy Real Estate in India

Prospective homebuyers who are eager to buy realestate in India should know that the Indian real estate market is highly dynamic changing constantly during the course of each year. Because the Indian real estate sector is in a state of constant flux, buyers often feel daunted and find it difficult to judge the correct value of a property and to accurately judge the investment potential of a house.

The few tips below, if they are followed, will relieve buyers from a great deal of guesswork they will face when they decide to buy a house.

Follow Price Trends for the Locality

For most households a new house is the biggest investment they will make in their lifetime. Before deciding to buy a particular house, the investor should be certain that the property they buy will prove to be an asset for them over the long term. Thus prospective buyers should always track the price trends of the locality where they are considering buying a house. To do this, prospective homebuyers should learn of the prevailing price and compare it to the price at which properties had been sold in the past. Learning of the real estate price movements over the past three years in a locality or region will provide a useful estimate of the direction home prices are heading. Gathering information about home prices in the past will also help prospective buyers arrive at a reliable estimate for home prices in a locality in the future.

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Understand The Growth Drivers

After understanding the price trend in a locality, buyers should try to understand why prices have risen or dropped in the region. According to the best real estate sites in India, micro and macro factors have an impact upon the price of property in a region. If new social and civic infrastructure is created or is planned in a locality this usually leads to higher real estate prices in that region. Macro factors including changes in interest rates, tax reform, and regulatory guidelines also result in changes in realty prices.

Who Does the Market Favor?

It’s important to understand whom the market favors. If a market is a buyers market it means that the number of properties for sale exceeds the number of buyers who are willing to buy at the prevailing prices in that market. Thus a buyer’s market is one where buyers have the upper hand because sellers have fewer willing buyers they can sell to.

In a sellers market, those who are selling the property call the shots because the number of willing buyers exceeds the number of those willing to sell a property in that market.

A prospective buyers can judge for himself whom the market favors by gathering data about how long properties in a region remain on the market before they are sold.

Regions With Potential for Spillover Demand

Buyers who have been focused on home buying in central regions should realize that certain parts of a city are susceptible to spill over demand after more central regions become saturated with developments. Because the regions near central regions already have easy access to good social infrastructure that lies in the central region, once the central region becomes saturated, the surrounding underdeveloped and inexpensive regions become highly desirable localities to live in. According to this property site, prices in the surrounding underdeveloped regions begin to rise dramatically due to demand which spills over from central regions.

Real Estate in Bangalore’s KR Puram Lake, Destructive to Water Body

Many who own realestate in Bangalore are pleased to live in their home and enjoy living in a city that has been bestowed the twin titles “city of gardens” and “city of lakes”. Once Bangalore had hundreds of lakes yet according to reputed sources the number of lakes in Bangalore has fallen drastically and today stands at eighty one.

The Death of a Lake

Much has been reported about the state of the Bellander Lake in recent days. It has been reported that the lake’s future as an important water body is in jeopardy because human waste from numerous developments that surround the lake flows into the large water body.  

However another lake that is not at too great a distance from Bellandur Lake is also seriously ill and its future is also uncertain. The KR Puram Lake is rapidly degrading due to the lack of a maintenance system that could prevent sewage from being disposed of in the lake. Encroachment on the lake’s borders is also leading gradually to the lakes demise.

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An Important Body of Water

The KR Puram lake is an important body of water for the locals who depend on a daily supply of water from the lake for essential activities. However today any visitor to the KR Puram lake could see for themselves that the quality of the lakes water is putrid and that illegal encroachments are taking possession of the land from which water has receded. Those who want to buy property in Bangalore so as to be near pristine lakes, today may need to do a double think before they go ahead and buy a house in the city.

Efforts By Those Most Impacted

Residents who have been the most impacted by the deteriorating condition of the lake have decided to hold a hunger strike on the twelfth of this month to compel the concerned authority to take action and establish a functioning maintenance system to reclaim the lake. There have been complaints by local residents who state that the dumping of untreated sewage water, non recyclable waste, and chemical effluents is turning the lake’s water into poison.

A resident has filed an RTI which reveals that a sewage treatment plant in the vicinity of the lake that had thus far been believed to treat 21 million liters of sewage a day is only capable of treating a maximum of 20 million liters of sewage a day. Claims by locals which are backed up by strong evidence point to sewage flowing into the KR Puram lake from nearby residential projects in Bangalore,

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Under RERA, Little Respite for Buyers with Investments in Unfinished Property in India

Home buyers who had hoped that work on their delayed best property in India would be fast tracked thanks to the RERA may have reasons to be concerned. Experts feel that buyers who had purchased houses in projects on which work has stalled or stopped because of legal issues may not experience any benign impact due to the Real Estate Regulatory Act. Furthermore there may also be no relief to homebuyers who had been hoped to receive their home speedily post RERA led enforcement in cases where the builder responsible for the project had used up all the money designated for the project.

RERA’s Is Geared Towards the Future

The goal of the RERA may in fact be to make home buying in the future a more transparent and speedier process, it’s power to serve buyers who had invested in undelivered projects in the past is less visible. Due to disclosures about projects by promoters after RERA has come into force, buyers will be able to make more informed decisions.

Promoters Have Option to Extend Completion Date

Under the RERA, promoters have the option to extend the date of ongoing projects while promoters register such projects. While the law requires that all ongoing projects must be registered with the state regulator before July 31, the law still empowers the builder to extend the deadline of the ongoing project while he registers the project with the state regulator.

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The newly established Maharashtra State Regulators website has stated that while a promoter registers a project, the revised date of the projects completion must be provided. This revised date must correspond with the work that has thus far been completed on the project. Hence, realistically a project that is only week away from completion cannot ask for a revised completion date of several months or a year.

Experts have commented on real estate sites that by providing an extension date to promoters when they register their projects, promoters are in effect being granted a fresh extension on projects that are delayed or projects that are about to be delayed.

The Problem for Home Buyers

If a builders inaction has led to delays on a yet to be completed project; home buyers who seek action against such a builder using the RERA will discover that the RERA has no clause to help them deal with such a scenario. Additionally if builders have been unable to complete projects despite receiving funds from buyers for partially or fully completed units, under the RERA, builders are eligible to seek an extension on the project while they register the project.

In case buyers had hoped for a swift resolution to projects that had been delayed due to legal issues, they will be disappointed as the builders, under the RERA will have to disclose the status and delays on past projects in accordance with the RERA.

Conclusion

Home buyers who have thus far been suffering under the burden of EMI’s paid for delayed projects may not find an immediate respite due to the RERA. According to this property website, home buyers who have yet to receive ownership of fully or partially paid for homes may have no recourse but to approach the District, State, or National Consumer Forum to vent their grievances.

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7 Ways RERA Will Affect Indian Realty Market

Real Estate (Regulation and Development) Act, 2016 or RERA is expected to bring a revolutionary change in Indian realty market. The act was passed in March 2016 and came into effect from May 1, 2017. The government has also formed a body named RERA to deal with the regulation, execution and functioning of the governing law. The government body will focus on smooth and proper channelization of the builders, buyer and real estate agents to make Indian realty market more organized, transparent and reliable.

Broadly, RERA is said to be a buyer-friendly law, which will compel builders and agents to engage into fair practices. The Minister of Housing and Urban Poverty Alleviation said that the law will make “buyer the king” making transaction of properties in India more consumer friendly.

Giving more power to the buyers is not the only change RERA is expected to bring in the market. Given below are top 7 ways RERA will make real estate market in India better.

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1. Developers need to register new projects which come under RERA norms with the considered authority. Along with this, they also need to register ongoing projects within three months of May 1, 2017. This will largely affect the quality of construction as builders will have fear of the authority keeping an eye on their activities.

2. As per the law, while selling a property builders need to clearly define carpet area, which is the net usable area. This will help buyers get complete value for their money with clarity on transactions.

3. Though the entire nation comes under RERA umbrella, every state needs to establish a State RERA. It will compel states to regulate the market in their region.

4. The rule to register projects on over 500 square meters of land or with eight flats needs to be registered on state RERA website. Buyers now don’t need to check other property websites in India to get project details.

5. Buyers now don’t need to rely only on the Appellate Authority for solution of their problems. They can now also approach consumer courts. Further, buyers now have right to ask the builders for repair of structural defects until five years from the possession.

6. Builders need to deposit 70% of the sale amount in an escrow account for construction of the same project. In case of default, they need to pay interest to the buyers as per prescribed standards.

7. Increased trust and comprehension of the real estate market after implementation of RERA law will draw attention of overseas investors.

Impact of the Real Estate (Regulation and Development) Act can already be seen in the market. There are many real estate websites, which have already started making improvements to abide by the rules.

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A Real Estate Website in India Reveals 2 Consequences of RERA

In the words of a highly esteemed real estate website in India, India’s real estate sector had thus far been actively played as though in one’s backyard following only the most basic rules and with no referee. The Real Estate Regulatory Act will change the nature of the real estate game from one that is played informally in one’s backyard and with rules that are routinely disobeyed, to a game played in a large well constructed stadium between professional players and a referee who enforces rules.

From May 1 of this year the RERA became the law of the land and hence from the 1 of May onwards each state and UT is to have its own Regulatory Authority that will frame rules and regulations following the provisions of the Real Estate Regulatory Act.

The 2 points below outline how the RERA will, and in some instances already is impacting the market of realestate in India.

How RERA Will Impact House Prices

The price of houses across India has not fallen to the extent it had been predicted it would. A lack of new demand, a large inventory of unsold units, along with demonetization have together not led builders to lower prices significantly. Although builders have not lowered prices, they have offered buyers freebies and discounts to stimulate demand for houses in the primary market.

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Real estate industry veterans have stated that rather than leading to lower prices, RERA will have the opposite effect and lead prices of real estate higher as risks which before RERA were borne by consumers shift towards builders. According to such experts before RERA consumers had to bear the risk of project delays, poor building quality, and unplanned changes in projects. More often than not most consumers had to bear the cost of a default, yet today under the RERA the entire brunt of the cost has been placed on the builders who will pass on the higher costs to consumers in the form of higher prices for new houses. Industry experts have stated that there is no room for builders to absorb these higher risks without raising the price of houses they sell, hence in all likelihood the price of houses sold on the primary market will rise.

The Much Publicized Delays in Delivery

Over the past few months the news has been replete with stories of builders who have delayed in delivering projects to buyers. This may be at an end thanks to the RERA as the Real Estate Act forces builders to create separate accounts for separate projects and to keep 70 percent of the capital paid for a project for use only for the project for which the money was paid. According to this real estate website this will mean that builders cannot transfer funds paid for one project to use on a different project which will lead to a timely completion of projects in the future.

 

Lack of Regulatory Authority Creates Confusion Among Builders in Ahmedabad and Gujarat

Many builders in Ahmedabad are facing a problem with regards to RERA as the Gujarat Government as yet has not formed a state level regulatory authority which is to frame regulation for builders to follow. Real estate developers in much of Gujarat are uncertain and confused with regards to how to register ongoing projects.

What the New Law Requires?

According to the new RERA law, new and ongoing projects shall have to be registered with the regulatory authority. By July 1 of this year, realtors have to register their ongoing and new projects. However because the Gujarat Government is yet to appoint a state level regulator who will frame regulation, builders are left in quandary concerning whom to approach to register their projects.

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Builders in Confusion in Gujarat

Builders in all of Gujarat including those in Ahmedabad are confused regarding how to proceed as there is no regulatory authority in the state with which they can register their projects. According to industry insiders, builders have stated that they hope that a authority would be established soon. For all their wanting of a regulator with whom they may register their projects, builders are also anxious about where and when they will get their registration numbers and which receipts from the bank accounts of new and existing customers will need to be deposited.

The questions mentioned above are of serious concern to builders and developers and are leading to confusion among not only builders and developersin Ahmedabad but also among builders across India in states that have failed to appoint state level regulators. According to a member of the CREDAI, the question of how and when builders will get their registration numbers and the question of customers bank receipts are paramount among those being posed by builders.

RERA: Bringing Transparency

Developers have stated that the RERA will bring transparency in the real estate sector, however developers have stated that the government should also create a dialogue with consumers in addition to a dialogue with builders. In such a dialogue the government could clearly explain its plans to build the required infrastructure.

The Word on the Street

The word on the street is that by the time the government takes the necessary steps to create a state level regulatory authority, there will be a shortage of time for builders to register their projects leading to a mad rush among numerous builders to register projects once the necessary infrastructure is in place.

Time is Of the Essence

It is expected that nearly a month will pass before the authority can be ready to create registration numbers for builders. According to estimates, there are 750 to 800 upcoming new projects in Ahmedabad and these have some 70,000 units all of which will have to be registered costing a lot of time and man hours in the process.

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