RERA clouds sector – States let down sector



The unpreparedness of state governments in registering projects under RERA is affecting the real estate business adversely in the Delhi NCR area-especially in Noida, Greater Noida, Ghaziabad, and Gurgaon.


Following the enforcement of the Goods and Services Tax (GST) on July 1, homebuyers are better off purchasing a flat from a project which applied for, or has already received, Occupation Certificate (OC) from the local development authority.


Under the GST, a project which has already received OC is exempt from GST at the rate of 12% of the value of the flat. Developers say that demand for completed projects has gone up substantially at the moment. Besides, under RERA also, these completed projects need not be registered with the Real Estate Regulatory Authority (RERA). But, because of the confusion over the implications of the provisions under RERA, developers are not able to market their products and their sales have slowed down considerably.


On the other hand, with authorities in Noida, Greater Noida, and Ghaziabad not issuing OCs to completed projects for the last one year, developers are not sure whether marketing such project without registering under RERA is permissible.


According to the Real Estate (Regulation and Development) Act, developers cannot market a project an under construction without registering it with RERA. But a state like Uttar Pradesh is not yet ready with the requisite infrastructure to register a project under RERA. This has left developers high and dry and business activities in the real estate sector have come to a standstill in the state. Though Haryana has started registration, it has no RERA rules so far. Manoj Gaur, MD of Gaursons and President of Credai (North India), said that demand for flats in completed projects has picked up. In Noida, as per the existing RERA rules, if a project has applied for OC, it is exempt from registration. “In my understanding, there is no bar on advertising and marketing projects which have applied for OC with the authority,” Gaur said. Gaur sons has been marketing completed projects with good results, Gaur said.


A project that has applied for OC and is ready for delivery will also not attract GST on sale to end customers. The GST on projects under construction is levied at 12%.


Therefore, this is a huge benefit and is an opportune time for end users to buy a ready-to-move-in flat.


Under GST, developers get credit for taxes paid on the inputs purchased after June 30. According to estimates, the total taxes paid on inputs to complete a project are around Rs 300-400 per sq feet.


Developers are supposed to pass on this benefit to customers by reducing the price by the same amount. But buyers will have to pay GST at the rate of 12% on the final price at which the developer sells an apartment to the customer. But as the final price is arrived at after reducing the price for the input tax credit he receives, the final cost to the customer after including the GST at the rate of 12% is not likely to make it costlier than the price he would have paid before the GST regime.


But, for this, the entire project should have been built within the GST regime-after July 1.


For projects under development, developers will get credit for those inputs only which they would purchase after July 1. Therefore, in a case where 90% of the construction is complete, the credit a developer gets would be very small. In this situation, a developer would not be able to cut prices and the buyer will have to pay GST on the entire amount. This would make his or her purchase costly.


Therefore, buying a completed project where GST would not be levied would be a better proposition for end users. But developers rue that they cannot market these projects aggressively.


R K Arora, CMD of Supertech, said that in April-May, sales in near-complete or completed projects had picked up–but, now, they have slowed down. He said he is ready with all the approvals to register a project but the state government is yet to create infrastructure for the purpose.


Ban on marketing a project under RERA is affecting the sector very badly. S Miglani, promoter director of Migsun, said that marketing is an important aspect of a business. He said that demand for projects under construction is also present but one has to inform buyers about the project. “We have manually applied for registration of our projects with the state RERA authority already,” Miglani said, adding that the process is underway and would take some time to complete.


A number of developers in Noida, Greater Noida and Gurgaon have applied for the registration of their projects with their respective state RERAs. But the registration numbers are yet to come. Though they feel that market has become responsive with prices touching the lowest possible level, and buyers are looking for suitable flats to buy, the unpreparedness of state governments in registering projects is affecting their business activities adversely.

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source: The Times of India.

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