Corona crisis, real estate andthe expectations from the government

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By Alok Gupta, President of the The Estate Agents Association of India, Central Zone One

Real Estate is one of the most stressed-out industries in this time of Corona crisis. Although the real estate industry in India is expected to grow more than 30% in the next ten years yet there is not enough government support to the industry. There are some vague premonitions and presumptions which need to be dumped and a corrective, constructive and conclusive package or policy needs to be framed for the industry. 

Corona crisis has crippled all but, the real estate industry the most. Some of the states issued a hasty guideline to the landlords to postpone the charging of rents by three months. As discussed in my earlier articles, the guideline was not only without any merits but also was vague and was issued out of some negative presumptions about the landlords. Although none of the government guidelines suggested to waive off the rent yet most of the tenants perceived it to be so or presented it to be so to pressurise the landlords to waive off the rent for some months or at least avail some discounts from them. Eventually, it turned out to be one of the biggest state-sponsored chaos for the industry. Such a guideline not only does promote lawlessness and prompts the parties concerned not to abide by the agreement,legally signed and registered by them.However hard the high courts and even the supreme court tried to clarify it, the damaged is already caused.

The Honourable Delhi High Court decision dated 21st May 2020 in RC. REV. 447/2017 clearly states “… The relationship between a Landlord and Tenant, a Lessor and Lessee and a Licensor and Licensee is primarily governed either by contracts or by law. In the realm of contracts, the respective rights and obligations of the parties would be determined by the terms and conditions of the contract itself …”. Shouldn’t thus the state abstain from interfering in the agreements legally signed by two parties and issue guidelines cautiously? 

Need to revise the circle rates and abolish the double taxation. It is a stark fact that the real estate prices have fallen sharply amidst the Corona crisis. There is a strong need to revise the circle rates of the properties by all the states across India. Circle rates of an area need to be fixed very meticulously after an in-depth study of the properties and property prices prevailing in a locality. Owing to the lockdown crisis, the situation has so become that the property rates are changing almost with every deal in an area. Thus, the government, at least for a period of one year, should keep the circle rates system in abeyance and accept the agreement value only, as the fair market value or the circle rate.

Some of the lawmakers wasted no time in stating that the builders shouldn’t hold their properties in this time of Corona crisis but should sell them at whatever price they get. The comment was very pessimistic and detrimental to the growth of the industry at large. But, even if we accept this point of view as it is, can a builder really do so without the revision of the circle rates in his area of operation? As per section 56(2)(x) of the income tax act, anyone buying any property for less than the market value is liable for income tax while the seller, as per section 54 of the income tax act, is taxed as usual considering the agreement value or the circle rate whichever is higher as the actual sale value. So, despite selling a property at a lower price the seller is obliged to pay the tax at a higher value. The buyer is also liable to pay the stamp duty at the market value as prescribed by the government rather than the actual purchase value. Income tax is governed by the centre while the stamp duty payments are governed by the states. Hence, if just the state governments keep in abeyance the circle rates system and accept the agreement value only, as the fair market value, the central government would not be required to amend the income tax act. 

Long Term Capital Gains ( LTCG ) Tax. If a residential property is sold and the seller re-invests the taxable income in another residential property, he is eligible for income tax exemption on the said amount. The said exemption should be extended to all sorts of properties whether residential, commercial, industrial, land or warehouse etc. So, to say, if taxable income out of any property sold is re-invested in any property, the same should be exempted from tax.

REITs ( Real Estate Investment Trusts ). The concept has not yet picked up in India. More measures are required to develop and popularise this concept. Sellers should be allowed to invest their Long Term Capital Gains ( LTCG ) in REITs to save tax on the same. Hitherto, this liability is allowed to be set off only against the purchase of a new residential property or investment up to Rs. 50.00 lakhs in some specified bonds. Also, the said limit of Rs. 50.00 lakhs be revised to allow the seller to invest the entire taxable amount in such bonds. Furthermore, the investment into bonds can be made only within six months from the sale of the property, delay beyond six months forfeits this option. Such investment period should also be co-linked with period allowed to invest the taxable amount in another property as per section 54 of the income tax act. 

Investors strengthen the industry. Most of the government policies, tax structures, duties and levies in this industry are designed, keeping only the end-users in mind. Like any other industry, real estate industry too needs investors’ in money to help the industry grow. The investorsmaking some money after remaining invested for some time is good for the economy.

Brokers drive market growth. A broker is the catalyst in a deal and hence in the growth of the market. Almost none of the parties can conclude a deal without a broker. Despite this, none of the policies is framed for him and the real estate broking industry at large. As per my analysis, on a conservative estimate, the real estate broking alone is a Rs. 18,000 crores industry in India and there are over 5,00,000 Real Estate Brokers across India but, sadly there is not even one specific law safeguarding this profession.

Rationalisation of Stamp Duty. Stamp duty on the sale of properties is one of the major revenue earners for the states in India but, charging the same irrationally in a situation where the industry is fighting for its lost sheen is being harsh. Such duties should be revised to be brought down to a maximum of 2% of the property value. Levying such duties through a backdoor by way of any cess or surcharge or inflating the property prices should be completely done away with. In the resale of properties, the stamp duty should be charged only on the incremental sale value. That means the buyers should be asked to pay the stamp duty after giving a rebate of the duty which has already been paid on the previous sale agreements.

Rationalisation of GST. At the rates of 12% and 18% on the sale andrentals respectively of commercial properties,GSTs are too high. The same should be brought down to 6% and 12% respectively and MSMEs( Micro Small & Medium Enterprises ) and the start-ups should be exempt from paying the GST.

Corporate Comm India (CCI Newswire)