Realty News

Demonetisation was a bliss for builders who were consumer driven

Business magnates, top industrialists and eminent investors have always believed in catering to consumers. Those who have transformed lives of people through various innovations and trustworthy projects have always sailed choppy waters. The same can be said about the Indian real estate sector.

The realty segment in India saw subdued response when demonetisation was announced last year. Scrapping of Rs 1000 and old Rs 500 notes sent the real estate sector into a sudden shock.

On one hand where developers were getting cold feet post demonetisation, few builders were immune to the announcement. Builders who remained unaffected by the note ban were majorly consumer driven, whereas investor driven had to face losses.

Investor driven builders suffered a setback as a painful demonetisation dried up the demand in the realty space, which roughly accounts for 7% of India’s GDP.

Most of the transactions are cash-based and the sector is considered best investment option for people to park black money. In majority of the transactions, sale documents don’t show the actual property price.

It is the cash-rich secondary market in India where investors engage in sale and resale, which plays a crucial role in fixing prices. Majority of the builders gave preference to those who paid 60% of the amount in cash and kept them ahead of the ‘white money makers’.

But, after demonetisation, the dynamics changed. Those with black money went into a tizzy and got busy figuring out how to account it. The Government’s crackdown on benami properties curbed cash transactions and thus, the note ban ‘cleansed’ the real estate sector.

In this clean-up exercise, builders such as Tata Housing and others remained unaffected as they were consumer driven. They have always focussed on consumer first, whether he/she can pay cash or not.

Builders who did not side-line the genuine buyers survived the heat and are now reaping benefits of government’s pro-industry and pro-consumer initiatives.

“Government has introduced a slew of initiatives and the impact will be seen soon. Builders who were consumer driven were hardly affected by the note ban. Coupled with RERA and affordable housing, genuine builders are going to lead the industry,” said industry expert Ankit Mahajan.

Demonetisation along with Benami Property Act and RERA will surely make real estate more organised, transparent, credible, especially for consumers.

Why possession-ready homes are winners

We often have to make choices in life: go left or right? Chocolate or butterscotch? Game of Thrones or House of Cards? A slightly more important choice you may have to make is between a home that is ready for possession and one that is under construction. Making the right choice, in this case, can be tricky. But in the end, it all boils down to the number of benefits you can get.

It is true that possession-ready houses tend to have higher prices than under-construction ones. But, with the implementation of GST and RERA, the situation is changing. Many buyers are opting for properties that are complete. Here are the reasons behind this decision:

Advantages of buying a ready-for-possession house:

1) No risk of delays

In the real estate sector, various factors could cause a delay in the delivery of the project. Buyers may have to wait from six months to six years for their house to be ready. For most people, buying a house is a dream. And that dream materialises quicker if you buy a ready-to-move-in home.

2) Decreased costs

A delay in construction can cost buyers a lot of money. For instance, if you take a loan to buy a new house, you will end up paying the EMIs, along with the monthly rent for the house in which you are currently staying. By buying a ready-to-possess home, you can avoid this additional expense and hassle.

3) Rental income

Many people buy houses as a second property to start earning rent. If you buy a house that is ready to move into, you can start earning a rental income from it at once. In contrast, if you buy a property that is under construction, your investment is locked in a project that may not generate any money for a few years.

GST and RERA: The big impac

Two other major factors have changed the real estate sector in the country. These are the Goods and Services Tax (GST) and the Real Estate Regulation Act (RERA).

From 1 July 2017, GST replaced the many indirect taxes as a single-tax regime in all sectors, including real estate. This has resulted in an increase in the tax rate from 4.5 – 5.5% to 18% in this sector1. With various deductions, the effective rate comes to 12%. But this rate applies only to the projects that are under construction. You do not have to pay GST on ready-to-possess properties with an occupancy certificate from a municipal body. This brings down the cost of a completed project in a big way, as compared to a project that is under construction, resulting in big savings for buyers.