India's real estate sector faces many challenges after new norms

By V Nagarajan

The real estate sector in the last two-three years has faced many challenges starting from demonetisation, RERA, GST followed by liquidity crunch in Q3. But of late, things are picking up. We expect better growth throughout the country because of two reasons — one is the lowering of the Goods and Services Tax (GST) rates on under construction projects and the number two is the continuity of housing subsidy, which the government has now extended till March 2020.

The market sentiment is improving and going ahead, there would still be a growth rate of around 15% in housing loan disbursements, according to LIC Housing Finance sources. NRIs continue to prefer realty as an asset class According to property consultant, ANAROCK’s recently-published Consumer Sentiment Survey, NRIs continue to view real estate as a favourable investment asset class. No less than 78% of the NRI respondents in this survey indicated that they prefer real estate over other asset classes like stocks, fixed deposits, gold and mutual funds.
Interestingly, of all the NRI participants in the survey, those residing in the GCC countries comprised maximum share with 36% (followed by 23% from Western Europe, 22% in Asia and 19% in North America). The survey also confirms that the preferred cities for investment by these NRIs include Bengaluru, Mumbai, Delhi NCR, Hyderabad, Chennai and Kochi.

The recent interim budget and the moderation of GST on real estate purchases gave NRI property investment sentiment a considerable boost. The decrease in GST for real estate, removal of notional rent on second homes and the provision to roll over capital gains tax incurred on the sale of a property within INR 20 million to purchase of two new homes instead of the previous one is a major incentive for long-term NRI investors — perhaps more than for resident Indians. Real Estate Regulatory Authority (RERA) Bill was introduced in 2013.

Q: I am planning to enter into a joint development agreement with a builder to develop my land in Pune. Does it require registration? What are the tax implications for land owner’s share? Prakash Dhorda, Sharjah.
The Supreme Court had held that immovable property could be legally and lawfully transferred/conveyed only by a registered deed of conveyance. Further, it held that entering into a joint development agreement (JDA) or providing a General Power of Attorney does not convey any title nor create any interest in an immovable property except to the limited extent of section 53A of the Transfer of Property Act. The objective of registration of the JDA is to make it enforceable and the documents accessible to public. As regards tax implications, the law is now made clear that the income arising under a JDA will be taxable only upon receiving the completion certificate for the project and not at the time of signing the JDA.

Q: I have let out my apartment in Hyderabad and would like to know any limit in terms of repatriation of rental income every year? Please clarify. Dharmani, Dubai.
You can rent out the property without the approval of the Reserve Bank of India (RBI) under the general permission given to NRIs/PIOs. Rent received can be credited to NRO/NRE account or remitted abroad. Powers have been delegated to authorised dealers to allow repatriation of current income like rent, dividend, pension, interest, etc.

of NRIs/PIOs who do not maintain an NRO account in India based on an appropriate certification by a chartered accountant, certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/provided for. Funds can be easily repatriated from Indian NRO account to abroad upto $1 million per financial year. In case of amount exceeding $1 million, approval of Reserve Bank of India is required.

Q: Our family members in India are forming a partnership firm to build farm houses in India and invited me to join the venture. As an NRI, are there restrictions to invest in such firms? Please clarify. Sameer, Dubai.
Yes. There are restrictions for NRIs to invest in firms as certain categories of properties are prohibited for investment. NRIs or Persons of Indian Origin (PIOs) are not allowed to make investment in ‘real estate’ business or construction of farm houses. Besides, the prohibited properties include agricultural and plantation properties. However, you should note that ‘real estate’ business shall not include development of township, construction of residential/commercial premises, roads or bridges.