Effect of RERA & GST on Real

Estate Industry
SOME FACTS
The total market size of Indian real estate is estimated to have doubled since 2008 and reached about INR7 lakh
crore. India has the largest housing market in the world, with over 75–80 per cent share in the total real estate
market size in India.
•Real Estate, IBEF, November 2016; and KPMG in India’s analysis, 2016-17

The potential for growth is significant as India would need to develop over 170 million houses until 2030 to meet the
needs of the rapidly urbanising population.
•Global Construction 2030, GCP Global and Oxford Economics, November 2015

It is estimated that the top-eight cities in India have approximately 6.5 lakh units of unsold housing stock.

•Housing sales up 7% in Jan-June in 8-cities; unsold-stock-down, First Post, 4 July 2016

A project developer needs to obtain over 30–35 regulatory approvals to develop a real estate project in India, the
whole process becomes cumbersome and also leads to delays, which inflates the project cost by 20–30 per cent.
•Urban Indian Real Estate – Promising Opportunities, KPMG in India, August 2016
Real Estate (Regulation and
Development) Act,
2016 establishes Real
Estate Regulatory Authority (RERA)
in each state for regulation of
the real estate sector and
also acts as an adjudicating body
for speedy dispute redressal.
Impact of RERA on
the Sector
RERA Compliance
The Industry Reacts
“While the company has not relied on presales in the past, overall development costs have gone up by another
50% post RERA, forcing it to look for more funds at the early stage of development”, said managing director.

“Cost has increased for the developers. There are management and administration cost to stay RERA-compliant.
And maintaining 70% in the escrow account would also put additional costs and investors are also not very happy
about it.” said Vice Chairperson at Nahar Group.

Many developers are now facing insolvency proceedings under the new Insolvency and Bankruptcy Code (IBC).
Most of these pertain to projects which are not registered under RERA. [The RERA Report Card, The Hindu, May 2018]

“Sales have gone up across cities in the March quarter and it’s a combination of factors that worked, but what
RERA did is to instil credibility in the minds of the consumers after many lost faith in developers,” managing
director, Liases Foras Real Estate Rating and Research Pvt. Ltd.

Portfolio shift in real estate developments like large integrated township projects promoted vis-à-vis standalone
buildings, backward and forward integration across real estate value chain.

India moves up to 35th spot on JLL’s Global Real Estate Transparency Index.
Karnataka RERA
Sluggish execution of RERA has been a hindrance towards unleashing the maximum potential benefit of the
Act, mere 1,500 projects registered even a year later.

New launches were put on a backburner this helped the city inch closer to a demand-supply balance and
thus, witness positive price movement.

The employment of RERA has instilled confidence amongst homebuyers, resulting in enhanced property
enquiries in the last one year.

Bangalore is possibly the only metro which survived the triple-tsunami of demonetisation, RERA and GST
and did not see dwindling average weighted capital prices in the last one year. [Impact of RERA,
99acres.com]
Goods and Services Tax (GST) is an indirect tax (or consumption
tax) levied in India on the supply of goods and services. The tax
replaced existing multiple cascading taxes levied by the central
and state governments.
 GST on Residential Property

Source: Impact of GST on residential markets, JLL & PWC, 2018

GST on existing contracts

Amount Amount
Demand raised Amount
Taxable Value of chargable under chargable under
Sr. no. till 30th June chargable under
Contract VAT Service Tax
2017 GST
(70%) (40%)

1 100 100 70 40 0

2 100 40 28 16 60

3 100 0 0 0 100
Effect on Construction goods

Source: Impact of GST on residential markets, JLL & PWC, 2018

Overall Impact of GST

Maximum benefits available only to projects that are mostly or entirely executed post implementation of GST.

For most projects the benefit will not exceed more than 3% of the construction cost thus giving minimal
reduction in price to end-consumers.

The effective rate of tax has not seen too much deviation, with the earlier rate ranging from 10–15% and now
moving to 12% under GST.

In case of luxury properties, the prices will swell by 5-7% depending on project to project basis.

Tax rate on financial services increased from 15% to 18% this may marginally increase home loan rates.
 In the Long Run
RERA will increase customer confidence, reduce litigation issues,
promote more investment in the sector.

Once the ambiguities of The Act are fixed, higher tax benefit can be
yielded.

Confusion and distrust in the wake of regulatory changes will reduce

thus increasing confidence of buyers and increase in sales.

Regularisation of the sector.

Redress for Project Delays and After Sales Service: This translates into the developer being liable to pay the
interest incurred on a home loan being serviced by the buyer for a property whose possession has been
delayed. Moreover, buyers can now legally demand after sales services from the developer for project
deficiencies that are recognized within one year of property handover.

The promoter will need to, without any further charge and in thirty days, rectify any structural defect/defect in
workmanship, quality or provision of services/other obligations of the promoter as per the agreement of sale which has
been brought to the notice of the promoter by the allottee within a period of five years from the date of handing over
possession of the Property.

In case of loss on account of any defect in title of the land on which the project is being developed, the allottee will be
compensated by the promoter and such claims for compensation will be outside the purview of limitation provided
under any law for the time being in force.