Real estate industry kept on tenterhooks for the GST bill to be passed

The realty industry is waiting with anticipation and keeping its fingers crossed, hoping that Goods and Services Tax (GST)  Bill would be passed in this session of the parliament , so that proper rationalisation of taxes on purchase of materials are not pushed further back.

Experts term the postponement of the bill as unfortunate; however they still believe that this bill will meet its proposed deadline of 1 April 2016, they are hopeful that since the parliament has only been adjourned sine die, the government will convene a special session at short notice and clear the bill which has been pending for a long time. This bill was one the much legislation that was supposed to be taken up and cleared this session; however that could not happen because of the logjam in the parliament, because of which this session of the parliament had to be adjourned.

Currently the construction industry pays tax on tax on purchase of raw materials, market observers feel that the benefit of correction or lowering of these taxes would have helped builders to pass on the benefit to the consumers which would have resulted in a positive growth sentiment and volume of sales could have picked up across cities, since the bill could not be passed in this session means that it could be pushed by another year, however the industry is expressing hope, that the bill would be cleared in the very near future.

However, there are a few experts, who feel that there will be no major impact on the industry if the bill is pushed onto next year; they feel that while this bill will certainly make it easy for real estate companies to do business as there will one uniform tax structure across all states but there will be no major impact if the bill is not passed in this session of the parliament.

Currently there are two types of taxes that the real estate industry has to bear- Service Tax and Value Added Tax (VAT), and there is a huge overlap of taxes, also there is vagueness on the rate of tax applied because of the options available for companies for paying these taxes across states. The GST bill will make this process smoother for the companies.

Goods and Services Tax (GST) Bill has been in the news for more than a decade now, however it has only in the last few months that a conscious effort is being made to make into a reality, it is supposed to be simple, transparent, efficient, comprehensive and practical in its approach.

Since this bill is a major reform in the real estate sector a well laid out GST bill structure will be immensely beneficial for the industry as well as the consumers, hence the industry feels that the government should take a more proactive approach by calling a special session of the parliament and this bill cleared, so that this ambiguity is cleared as early as possible.

Factors defining the Real Estate Industry in 2015

 

The government`s reform focused agenda for reinvigorating the real estate sector will possibly give fresh impetus to the real estate industry in 2015, with inflation gradually going down and borrowing rates expected to go down,  will encourage potential buyers planning to buy a house to finally go ahead and avail home loans. 

The market saw a revamp and developers are now by and large focusing on affordable housing, this will go a long way though not completely in bridging the existing wide gap between demand and supply of affordable homes, also with property rates staying stable and good deals being offered by developers to clear their inventory will encourage buyers. With the economic activity picking up and Corporate India making it clear there will be hiring of new talent in various sectors to take care of the growing business needs which means that there will be rise in jobs and income which is favorable for both residential and commercial real estate projects. 

In 2015 developers will be focusing more on right-sizing and right-pricing of their projects, better designed and more efficient homes will define the real estate industry.  Affordable housing will be the key word in 2015. While the government at the center has spoken very clearly about their agenda to push for affordable housing it is the state governments that will have to carry out these initiatives. Affordability is a term that has different meaning in different markets in India. 

Each city has its own benchmark for affordability; developers in each city are aware of these facts and must focus on providing affordable housing in their cities. Affordable housing is not a difficult thing to deliver the challenge for the developer however lies in co-coordinating this format in a way that their existing brand image is not affected.  

In commercial real estate over the last few until 2014 the supply was greater than demand with the developer expecting a turnaround in economic activity, because of the slowdown of the economy the office real estate prices failed to recover up to late 2014 however we did see the start of a gradual turnaround. This can be associated to the fact that real estate developers began to reduce the supply which was high earlier to a normal level of demand which helped them to bring down the vacancy rates. In 2015 the probable demand should be around 26 to 30 million sq ft improving slightly from the level witnessed in 2014 however with India`s GDP set to strengthen further a positive growth in commercial real estate cannot be ruled out, in fact one positive development seen soon after general elections in 2014 are in the office market leases, this moderate to healthy leasing activity should continue in 2015 as well.