The real estate sector is a key driver of India’s economic growth and forms the backbone of several other industries. The unexpected pandemic followed by the lockdown has crippled the economy and disrupted the business cycles of the country which the sector isn’t immune to. The lockdown has further aggravated the problems as all the construction activities have come to a grinding halt.
With the sector expected to contribute 13 percent GDP of the country by 2025, it is seeking constant measures from the government in order to tide through the wave of slowdown. The government has already laid the groundwork for making it more organised and transparent and acted as a support system by providing relief to all connected stake holders.
Measures that have been at the forefront of providing relief include reduction in repo rate and reverse repo rate, six month deadline extension for under construction projects, and relief to loans taken by NBFC’s for commercial projects. These measures have acted as temporary relief packages in the interest of home buyers, investors, and stakeholders.
As the Ready Reckoner Rate (RRR) is the standard value of an immovable property the impact it has on the real estate sector is vast. The rates are set by state governments and are revised every year according to market dynamics. Given the slowdown in the real estate market over the past few years, it is possible to find properties below the Ready Reckoner Rate. As of now the state government of all states are following the RR rates of 2019-20 which has been unchanged for the past two fiscal years. Currently, the announcement of the Ready Reckoner Rate has been postponed due to the pandemic.
It is suggested that the government should bring down the Ready Reckoner Rate by as much as 40 percent for the next two years in the state in order to give a boost to the real estate sector. Reducing the Ready Reckoner Rate or bringing it in line with prevailing price can benefit both buyer and seller and thus can help revive demand in the sector. With this focus there is hope that the Indian economy would also return to its 8-plus percent growth rate soon. The sector expects up to 50 percent reductions of stamp duty charge on housing, at least for a limited time from the government.
The government should allow staggered payment of charges as people are not in a financial position to make upfront payments. Technically, the dozens of premiums that builders have to pay to the state government and the municipal authorities are all connected to the RR rates. Therefore the reduction of the unrealistic RR rates will act as a lifesaving jab for developers.
This will help in equalising the supply and demand of properties fulfilling interests of both buyers and developers. These measures would boost the spending behaviour of the consumer, motivate prospective buyers to invest in properties which will bring in cash flows, in turn boosting the sector.
The another way in which the stamp duty collections can be increased , is to stream line the land value shown in the Ready Recknor. The land value as per the current Ready Recknor is in the range of 45 to 55 percent of residential value. If the land value is determined as 25 percent of the residential value, then also volume to register the land transaction will increase. By higher land value in RR, the state also ends up paying very unrealistic and high cost of acquisition. If the land value is brought down then saving in acquisition cost will be very big. The commercial values are also taken twice the residential value.
This has to be at par with residential value except for ground floor of shopping. By rationalising the Ready Reckoner Rate, the volume of transactions will increase which will increase collection and also will make property available to common man at much cheaper price which will go a great length in building goodwill with the common man for this government.
Further, under the ease of doing business initiative the process of payment of stamp duty /issuing of challans and scanning of documents needs to be fasten. Also, though e-registration has been initiated the same has not taken any grip due to technological glitches. If the same can be streamlined, there will be increase in volume of e-registration thereby speeding up of the entire process of revenue collection.
In addition to this, the provisions of RERA — (i) under S-18 (Return of amount and compensation) as regards the withdrawal from the project by the allottee and refund of the amounts along with interest /compensation and (ii) under S-19 as regards refund of the amounts with interest in an event of delay in handing over the possession, needs to be suspended at least for two years so that the developers will be in a position to complete their projects and utilise the receivables only towards the construction.
The author is the chairman of EKTA World, and President-Elect, NAREDCO Maharashtra.