Real estate industry too needs investors to plough in money to help the industry grow
In order to revive the constantly receding real estate industry of India, we need to understand the industry, the fine components it consists of and above all remove some myths from our mindsets.
MYTH: ALL BUILDERS ARE CHEATS
FACT: Real estate business in India has now taken the shape of an industry and those builders who could be termed as the cheats are practically out of market now. Now a days, most of the time, it is the builders who suffer. Sometimes, they do not get clearances in time despite having incepted their project and quite a lot of times they are not disbursed their loans in time despite having purchased the land and invested their share of money in the project.
MYTH: INVESTORS ARE NOT REQUIRED
FACT: Most of the government policies, tax structures, duties and levies in this industry are designed keeping only the end users in mind. Like any other industry, real estate industry too needs investors to plough in money to help the industry grow. Investors here mean all those buyers who are buying the real estate not for self-use.
MYTH: IT IS WISE TO ELIMINATE BROKERS FROM THE INDUSTRY
FACT: The fact is, today, almost none of the parties is able to conclude a deal without a broker. It is him who actually gets the deal concluded smoothly. Despite this, none of the policies is framed for him and the real estate broking industry at large.
MYTH: REAL ESTATE PORTALS ARE A SUBSTITUTE TO BROKERS
FACT: It is good to have these portals but, these portals, since are not bound by any specific law, are never as authentic as the real brokers operating in a locality. In the times to come, the role of a professional broker will increase.
MYTH: THE CIRCLE RATES ARE THE ACTUAL RATES OF THE PROPERTY
FACT: Earlier, it was believed that the circle rates are generally the rates lower than the actual rates prevailing in a locality. The problem now is that, owing to the present market situation, these circle rates in some of the localities are higher than the actual rates. Circle rates of an area need to be fixed very meticulously after an in-depth study of the properties and property prices prevailing in a locality. If needed, the same should be revised more than once a year.
How to revive the industry and what is expected from the law makers Removal of the double taxation
At present, if a property is sold for a price less than the circle rate, the buyer as well as the seller, both are liable to pay the income tax on the difference between the actual sale price and the circle rate. Taxing the seller and even also the buyer based on the circle rates is a regressive tax policy, more so in today’s time when the circle rates in some areas are actually over-rated. The Section 56(2)(x) of the Income Tax Act needs to be relooked upon.
Rationalisation of Stamp Duty
Stamp duty on the sale of properties is one of the major revenue earners for the states in India but, charging the same irrationally in a situation where the industry is fighting for its lost sheen is being harsh. Levying such duties through a backdoor by way of any cess or surcharge or inflating the property prices should be completely done away with.
Rebate in Stamp Duty on Resale of Properties
In the resale of properties, the stamp duty should be charged only on the incremental sale value. That means, the buyers should be asked to pay the stamp duty after giving rebate of the duty which has already been paid on the previous sale agreement. This will encourage the investors to come in the industry which in turn will bring in more funds in the industry.
Rationalisation of GST
GST at the rate of 18% on commercial rentals is too high. The same should be brought down to 12%. Also, the start-ups should be exempt from such GST. All those start-ups who are renting any commercial property for their ventures should be exempt from paying the GST on their outgo of such rentals.
REITs (Real Estate Investment Trusts)
More measures are required to develop and popularise the concept of REITs in India. Sellers should be allowed to invest their Long Term Capital Gains ( LTCG ) in REITs to save their tax liability. Hitherto, this liability is allowed to be set off only against the purchase of a new residential property or investment up to Rs 50 lakhs in some specified bonds. The Section 54 of Income Tax Act needs to revised and reframed.
The author is the President, Estate Agents Association of India, Central Zone One