How was 2013 for home buyers in India? Let's recap

Everyone is bidding a goodbye to 2013 and gearing up for welcoming 2014. It’s time to recap the year gone bye and prepare for the new one. With the same thought in mind, Makaan.com brings you an article to recap and sum how was 2013 for the home buyers in India. What were the provisions that came in place and what was the impact on the buyers. Let’s see:

Home Loan Exemption Limit Increased from 15 to 25 Lakhs for First Time Homebuyers

Provision: Finance Minister P Chidambaram presented one of the highly awaited economic blueprints, India's 82nd Union Budget for the year 2013-2014. Chidambaram was under pressure to better the damaging credit ratings of the country and arrow fiscal and current account deficits. He was expected to announce actions and reforms to keep a cover on government spending in fiscal 2013/14. For real estate sector and home buyers there were several announcements. The Finance Minister announced that a person taking a loan of Rs.25 lakhs for his first home will get Rs.1 lakh additional exemption. The exemption limit on repayment of interest on home loan has now increased from 1.5 lakhs to 2.5 lakhs. The other highlights for the real estate industry were:

• Measures will be taken to increase investment in infrastructure.
• Infrastructure debt fund to be encouraged.
• Select institutions to be allowed to issue tax free bonds to raise Rs. 50,000 crore to fund infrastructure projects.
• Rs. 6,000 crore to be allocated for rural housing fund in 2013-2014.
• National Housing board to set up Urban Housing Fund with an allocation of Rs. 2,000 crore. Interest Rate subvention scheme will be extended.
• Tax-free infrastructure bonds of Rs.50,000 crore to be issued.
• TDS at the rate of 1% on the transfer of movable property for amount above Rs. 50 lakhs, with the exception of agricultural land.
• Abatement rates to be reduced on luxury apartments.

Introduction of Real estate regulatory bill

Provision: The Union Cabinet approved the Real Estate Regulation and Development Bill in an attempt to bring transparency and accountability in the realty sector. The Bill provides for setting up a regulator at state level for the real estate sector and having provisions like a jail term up to three years for developers who make offences like repeatedly putting up misleading advertisements about projects. The bill mainly aims at protecting the interests of the homebuyers from certain unscrupulous developers and builders. It also makes it mandatory for developers to launch projects only after acquiring all statutory clearances from the relevant authorities. The Bill has provisions under which all relevant clearances, from title deed to project cost, for real estate projects would have to be submitted to the regulator and displayed on a website prior to starting the construction.

Impact:

• Specification of the carpet area will stop misguiding the buyers on the basis of super area.
• Construction has to be completed on time and there will be timely delivery of the projects.
• Buyers will not be mislead due to difference in the advertisements and the actual project.
• Delay in projects might create lower supply and fewer options of housing units.
• A dispute redressal mechanism will be introduced.
• Buyers can check the approvals, status of the projects and other information on the regulator’s website

Pay TDS on purchase of property above Rs. 50 lakhs
Provision: The amendment, effective from June 1, 2013, stated that under the Finance Act 2013, the purchaser of an immovable property (any land or apartment or flat or building other than agricultural land) costing Rs. 50 lakhs or more is required to pay a withholding tax. The rate at which the tax is to be deducted is 1% of the amount paid. The new provision has been introduced by adding Section 194IA. The major objective behind the introduction of the new section is to track real estate transactions that are not being registered. The Finance Minister proposed that in order to have a reporting mechanism of transactions in the real estate sector and to collect tax at the earliest point of time, TDS should be applicable. It will widen the tax base and check tax avoidance measures.

Indian Land Acquisition Bill

Provision: The political parties reached a consensus over the much-awaited Land Acquisition Bill after the government gave in to a major demand of Bhartiya Janta Party for 50% compensation to farmers. The objective of the Bill is to address the problems of the industry regarding the acquisition of land for setting up residential projects and industries. The debatable Bill on land acquisition at last enhances compensation for farmers.

Impact: The Bill states that consent of 80% of the landowners is required for acquiring a land for any private industry and consent of 70% of landowners is required for public-private projects. Consent is also needed for the compensation that has to be paid to the farmers. The Government has agreed that individual States can pass legislation regarding leasing of land and limits of acquisition. The government also mentioned that under the Bill relief and rehab benefits will be provided to the families dependent on the acquired land. The SEZs will have to comply with the new norms. The government also agreed to look into another demand that the tenants should also get the profit from the compensation.

RBI cuts Repo Rate

Provision: On January 29, 2013, the Reserve Bank of India (RBI) slashed its key interest rates by 0.25%. It was also supported by a cautious note on further easing so as to see how the budget aimed to bring a bloated fiscal deficit under control. In the third quarter monetary policy review, the RBI Governor, D Subbarao cut the short-term lending rate called repo by 0.25% or 25 basis points (bps) to 7.75%. RBI also unexpectedly reduced the Cash Reserve Ratio (CRR), the share of deposits that banks must keep with the central bank, by similar margin to 4%, releasing Rs. 18,000 crore primary liquidity into the system.

Impact: The repo rate cut would have reduced the cost of borrowing for individuals wanting to take home loan and the reduction in CRR would have hopefully improved the availability of funds for the real estate sector. The inflation had been the restraining factor that prevented the RBI from cutting repo rate. It saw a host of liquidity infusing measures like a cut of 1.75% in CRR, government bond buybacks and 1% point cut in SLR. Apart from the high inflation, there was lack of complementary efforts from the fiscal authorities as well.

Faster Approvals for Real Estate Projects
Provision: The process of acquiring more than 50 different approvals from the state and central government and visiting different departments for starting any real estate project made way for fast track approvals. The government brought together a committee that will plan to fast track these approvals.

Impact:

• The home buyers can check on the status of the project approvals before booking.
• They do not have to depend on the developers’ word for the status of approvals.
• Decrease in properties being stuck due to the lack of some approval.
• The ever increasing home prices could be monitored and brought down because approval delays result in escalation in the costs.

Homebuyers started getting 90% loan against property

Provision: The Reserve Bank of India (RBI) decided to relax the rules for Residential Housing (RH) projects by lowering the standard asset provisioning requirement and risk weight for loans given to those projects. The bank carved out a sub-section for residential housing projects from the Commercial Real Estate (CRE) category. The new section -CRE-RH attracts lower risk weight and provisioning as compared with CRE loans, ensuring more credit flow to the housing construction sector.

Risk weight for different loans under the CRE segment

Impact: CRE-RH segment will attract a lower risk weight of 75% and lower standard asset provisioning of 0.75% as against 100% and 1.00%, respectively, for the CRE segment.
As the risk weight is lower in the residential housing projects than the broader commercial realty sector, the banks charged lower interest rates for such loans enabling the builders to borrow at lower rates and bigger amounts for such projects. Therefore, there will be more credit flow to the housing construction sector.

Rupee depreciation crossed all previous records and fell down till 68 per dollar

The Indian rupee hit an historic low against the US dollar. Although, the government took many steps to hold the free slide of rupee, the decline could not be contained.

Impact: Escalated costs

• With the increase in purchasing cost of daily household objects, the buyers and investors adopted a wait and watch policy and delayed their investments.
• Most Indian home buyers pay EMIs and sometimes rent; therefore, they felt the pressure to manage their finances with the increasing cost of living.
• Costs of services and raw materials like transportation and steel escalated indirectly raising the cost and delivery time of the real estate projects. The raised cost became a reason for projects’ delay.
• The sudden and unexpected escalation of costs disturbed the budgeting of developers and ultimately caused delays in the project delivery.