REFORM ISSUE IN REAL ESTATE SECTOR

The Indian real estate market is still in its infancy, largely unorganized and dominated by a large number of small players, with very few corporate or large players having national presence. The Indian real estate market, as compared to the other more developed Asian and Western markets, is characterized by smaller size, lower availability of good quality space and higher prices.
However, the concept of real estate has recorded a major increase in the recent past due to the increase in the population and also due to the fact that majority of the people have started settling in the urban areas due to their employment opportunities and hence the need for these structures has increased abundantly. The consequent increase in the business opportunities and the migration of labour has increased the demand for commercial and housing space especially the rental housing development in the real estate sector is being influenced by the development in the retail, hospitality and entertainment (i.e., the development of hotels, resorts, cinema houses) industries, the economic services and the IT enabled services.
It is the major employment driver being the second largest employer next only to agriculture. This is due to the reason that the other industries like steel, cement, brick, timber and building material are linked to this sector. It is difficult to estimate the exact contribution of the real estate sector to the gross domestic product. The gross value added in the ownership of dwellings is equivalent to the gross rental of the residence dwelling less the cost of repairs and maintenance.
The Indian market is still in its infancy, unorganized and dominated by a large number of small players with a few corporate or large players having national presence. The Indian real estate market as compared to the other developed Asian countries is characterized by a smaller size, lower availability of good quality space and higher prices. The State- owned Development bodies and the Housing Boards leaving very little space for the others largely control the urban land.
The restrictive legislations and the lack of transparency in the transactions are the other main impediments to the growth of this sector. Limited investments from the organized sectors has also hindered in the growth of this sector. There do exist large amount of undeclared transactions mainly due to the high stamp duty rates and also stringent legislative Acts.
In order to enhance reform in Real Estate Sector the following points are to be taken into consideration:
1. Infrastructure Status to Housing: This will enable easier access to the low cost institutional funds and also allow the sector to tap long term funds.
2. Real Estate Mutual Funds: The government should consider setting up the Real Estate Mutual Fund/Investment Trusts to provide the much needed support to the cash starved housing sector. The Real Estate Mutual Fund/Investment Trusts would be an efficient mode for providing equity financing as against debt, which is currently the norm for financing real estate development in India.
3. Stamp Duty: In some states the stamp duty is as high as 14–15% of the value of a transaction. Astonishingly, in Indian context not only the stamp duty is high but the levy of duty is done at every subsequent stage of transaction, be it the initial transfer/purchase of the land or on further sale of the same land after development or any other succeeding transaction. Though the rate is stepped down to 6–8%, it will be ideal to get it down to 2–3% and make it uniform throughout the country.
If the above is not practically possible, then stamp duty is to be mechanized whereby a provision for concession or a system of credit for any subsequent transaction should be made which would avoid the cascading effect of stamp duty and reduce the cost of the property. This concept is already in existence in the other statutes viz., CENVAT, VAT, etc.
4. Public private partnership: There is a need to evolve a regulatory framework that encourages participation of the private sector in bringing technical and managerial expertise to formulate and deliver basic amenities like water, sanitation, transport and electricity.
5. Amendment of Laws: There is need for amendment of the laws involved in this sector to encourage growth.
6. Environmental Impact Assessment Notifications: The notification specifies that no construction activity can be taken up despite the approval of plans by the competent authority, till the environmental clearance has been sought. In cases where the approval of plans has already been granted the construction activities are allowed, though in the intervening period the builder/ developer should obtain the clearance.
Further in cases of proposed projects the environmental clearance in city development projects should be obtained by the states themselves or by the planning bodies and not by the individual to save time.
7. Taxation: Over a period of time the tax and the regulatory environment in the real estate sector have become very important. The construction industry is already subject to a number of taxes and is considered one of the most overburdened tax segments. The corporate involved in this segment is of the general opinion that there should not be further imposition of levy in any form in this particular sector. Any further tax burden on this sector would affect the growth and the development of the sector as a whole.
a) Service Tax: The service tax in relation to construction of residential house complexes having more than 12 houses has been imposed. However, no rationale has been provided for the exclusion of services in relation to construction of residential bungalow that may not be part of a ‘residential complex’.
There seems to be no plausible rationale for taxing a residential complex and not construction of a bungalow that may entail a higher cost of construction in many cases. Further, no rationale has been provided for the threshold of 12 dwelling units in a residential complex. The service tax should not be levied, because the sector is paying a number of taxes.
b) Value Added Tax: VAT has been introduced in 20 states. For the successful implementation of VAT it is important that there should be uniformity in the rates, rules and regulations throughout the states. Not only do the rules vary but also the regulations. There is an urgent need to abolish CST as VST and CST cannot go hand in hand. It is important that local levies be completely abolished from all states.
c) Free Trade Agreement (FTA): The government may consider signing up of more FTAs with other countries in the interest of the real estate segment. However, while doing so, the interest of the domestic players should be borne in mind.
d) Form C: Uniformity regarding the permission to issue a Form-C for the purpose of purchasing goods to be used in the work contracts. The State Government should abide by the Central Laws regulating the issuance of Form-C.
e) CST: According to the norms of CST, sale includes work contracts. Hence, any goods moving from one state to another for the purpose of usage in execution works contracts now fall under the ambit of inter state works contract and the state from where the goods are moved is liable to impose the tax.
f) Excise Duty on Immovable Property: The excise duty should not be levied in the case of immovable property like in the case of installation of lifts to encourage this sector.