Illustration: Sandeep Joshi
Geetu Vaid
Real estate markets all over the country have been in a tizzy for the past ten days ever since the announcement of demonetisation of Rs 1000 and Rs 500 currency notes. This move blocked the flow of “black” channels of funding while clearing the way for a fair, transparent and customer friendly era. Here’s a recount of issues that were hotly debated all through the week:What now?
For a common man and prospective homebuyer the most important question was that with virtually no cash (read unaccounted for money) in the market what will be the effect on the ongoing projects as well as on transactions being carried out by builders?While elaborating on this Narasimha Jayakumar, Chief Business Officer, 99acres says, “The sale of residential properties as well as land is expected to be severely hit as majority of the investors won’t be able to park unaccounted cash in this asset class anymore and those with white money will adopt a wait-and-watch approach expecting the prices to drop significantly”. “As black money is completely being sucked off the system, developers need to pay in white for land purchase, construction labour and materials. This will increase the cost of construction for builders and hence they would need to pass this back to the new buyers. A few developers have already started increasing prices and we expect more to follow”, adds Ankur Dhawan, Chief Business Officer- Resale Business, PropTiger.com.New ways to deal
with funding needs
Experts have been hinting that developers across the board will have to tap new ways to fund their projects now in the absence of easy access to cash component received from buyers. Several developers may opt for short-term loans from buyers or investors at market price by committing to deliver the project and at an interest amount as per the sale agreement.“Developers might mortgage their unsold stock with institutional investors to raise funds. This will open gates for FDI, private equity and HFC players to enter the market”, says Narasimha Jayakumar. Agreeing that PE will become a major source of funding for developers Ankur Dhawan adds, “Recently we have seen new structures being evolved such as platform deals, apartments funds in addition to convertible debentures”. Platform deals are the ones in which the builder and PE firm forms a platform to invest in multiple projects of builder e.g. Godrej and APG platform deal. This helps PE firm in avoiding multiple due diligence. Apartment funds on the other hand refer to deals wherein PE firms buy an X number of apartments in a project of a builder and provide funds for the same e.g. Piramal Apartment fund. The PE firm in this case signs strict contract which ensures money is used construction of said project only. When the project is ready, PE firm can sell on its own or through builders its share of apartments.Circle rate rationalisation
The cash component was added to deals to fill in the gap between the Circle Rate and the market price in a particular region. Now this gap is going to disappear and it is on this premise that most of the industry insiders are predicting a fall in property prices in the near future. The circle rate will be on a higher side now, feels Suresh Aggrawal, President, Haryana Property Dealers Welfare Association. While in cities like Panchkula there has been demand for reducing the circle rates but now it will not make any difference said Aggrawal. But there is a need to rationalise it, he added. “In Panchkula the gap between circle rate and market price is less in sectors like 25,26, and 27, but it is much more in sectors like 6, 7, 8, 15 etc. So there is a need to rationalise the circle rates and these should be in accordance with the area”. According to Jayakumar the gap between circle rates and market rates will reduce as the property prices are expected to come down by at least 10 per cent. “This will primarily be driven by the financial stress in the market resulting from meek sales volume in primary market and distress sales in the secondary market”. “As cleaner transaction data will now be available with government authorities, it can be used to arrive at circle rates closer to actual property prices”, adds Ankur Dhawan.Lower loan interest rates
The sector is also looking forward to the RBI cutting down home loan interest rates sometime soon. According to Kotak Institutional Equities, the RBI is all set to cut rates in December.“We retain our view of 25 bps rate cut in December but do not rule out frontloaded 50 bps cut to account for the expected demand hit due to demonetisation,” Kotak Institutional Equities said in a research note. Niranjan Hiranandani, CMD- Hiranandani Communities and Founder-President, NAREDCO Maharashtra, says, ““I expect a 25-basis-point rate cut by the RBI in Q1 of calendar year 2017,” he said.
Tax surveys
- All this was despite the authorities remaining vigilant about such underhand transactions. In the NCR income tax officilas surveyed some realty players to check allegations in this regard. The department conducted the exercise on at least four such entities in the Delhi-NCR region and visited over half-a-dozen premises. The tax sleuths made an inventory of cash and sale documents at these locations and checked sale documents. Officials added the department also scanned records of some previous sales made and asked the officials of these firms to produce the records at a later stage. Builders, however, played down this by maintaining that these were routine checks. Real estate firm Amrapali Group called the operation a routine exercise. “A team of tax officials has visited our office premises and they are inspecting the company books and accounts. It is a routine exercise done by them,” Amrapali Executive Director Shivpriya was quoted as saying. Another group and real estate brokerage firm called it a ‘normal’ operation.
- “They (tax officials) came to check if we are accepting cash or not. We are doing legal business. We deal in primary market where there is no cash,” Investors Clinic Infratech Private Limited Founder and CEO Honey Katiyal said, according to a PTI report.
- Adjusting “black”
- The past ten days saw real estate becoming the most obvious choice of those wanting to “adjust” their unaccounted for cash. What started off as a trickle last week transformed into a strong current this week as those with unaccounted for cash as well as the developers with unsold inventory fast-tracked shady deals. With 60:40 and 50:50 offers getting redefined in the market the developers as well as buyers had a hectic week. With Rs 10 lakh in old cash fetching value between Rs 5 to Rs 6 lakh for buying properties in different locations in cities like Zirakpur, Ludhiana, Karnal, Panipat, Faridabad, Noida, Lucknow, Allahabad, Bhopal, Pune, Nasik etc, the trend of parking black money in realty sector remained unabated all over the country
Stricter law against benami deals
A lot is being said about the government targetting benami properties as the next stage of the crackdown against illegal wealth. With the Benami Transactions (Prohibition) Amendment Act, 2016 coming into force from November 1, 2016 the authorities are on strong footing to root out this illegal practice from the country. The notification in this regard issued by the Income Tax department stated that after coming into effect the BTP Amendment Act, the existing Benami Transactions (Prohibition) Act, 1988, shall be renamed as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act). The Act defines benami transactions and also has provison for imprisonment up to seven years and fine for violation of the Act. The Bill, with just nine sections, had been passed by Parliament in 1988 but could never be enforced for lack of provisions in the Act for its implementation. The government had brought an amendment Bill (with 71 sections) instead of a new Bill to block the escape route for all those who entered into benami transactions since 1988.The benami (without a name) property refers to property purchased by a person in the name of some other person. It is an open secret that the benami route is adopted by corrupt political leaders, government officials who often use the names of their trusted peons, drivers, household help to purchase agricultural land and urban properties. The person on whose name the property is purchased is called the benamidar. The person who finances the deal is the real owner. In most such deals the property papers are kept by the person paying the money and he also keeps a power of attorney to sell the property when the price appreciates. While properties in the name of genuine religious trusts will be kept out of the purview of the legislation, Section 58 under the law clearly states that in case of charitable or religious organisation properties, the government has the power to grant exemption. The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the government without payment of compensation. The new law also provides for an appellate mechanism in the form of an adjudicating authority and appellate tribunal. For the purpose, the adjudicating authority referred to in Section 6(1) and appellate tribunal referred to in Section 25 of the Prevention of Money Laundering Act, 2002 (PMLA), have been assigned the task under PBPT Act as well. Under the Act, in each of the principal chief commissioner income tax regions, a joint/additional commissioner of income-tax, an assistant / deputy commissioner of income-tax and a tax recovery official have been notified to perform the functions and exercise the powers of the approving authority, initiating official and administrator, respectively. — GV
GURGAON DEVELOPMENT AUTHORITY
Hope amidst despair
Vinod Behl
After years of unplanned growth and deficient infrastructure, badly hitting the quality of life in Gurugram, finally there is a hope for a planned, integrated, sustained and speedy development and growth of the millennium city, as the much awaited Gurgaon Development Authority (GDA) starts taking its shape, following the Draft GDA Bill put up by the Haryana Government.The government has appointed senior IAS officer, V. Umashankar, as the OSD to GDA, to carry forward the process of formation of development authority. Umashankar has initiated an elaborate process of seeking feedback from all sections of society for the purpose of incorporating some of the suggestions in the final legislation draft that will reportedly come out by December 10, setting the stage for the enactment of the GDA Act, leading to its formation in the new year.In a run up to the formation of GDA, it is important to mention that the flawed model of real estate development preceding infra development, has been the bane of Gurugram in terms of deficient infra as well as for denying the city the tag of ‘Smart City’. Even the residents of the newly inhabited sectors (Sector 58 onward), have been facing hardships due to infra bottlenecks. Navin Raheja, CMD, Raheja Developers, says, “The development of roads and infra should precede issuance of licenses. The first task GDA should take up, is to provide infra like drinking water, electricity, roads, social amenities to thousands of home owners, occupying completed projects without electricity and water”. V. Umashankar assures saying that the proposed authority will focus on infra development, mobility, urban environment and sustainable development, with first priority to prepare a master plan with a view to improve the standard of living in the city.
Hope for cash-starved HUDA
Another major reason for development works taking a hit is the cash-strapped HUDA. A significant part of thousands of crores of EDC collected from developers in Gurugram, remains unspent amidst charges of diversion of funds. Raheja says that the EDC collected under the respective master plan, should be spent on the same master plan and should not be diverted. V. Umashankar has gone on record assuring that EDC money for Gurugram will be spent there only. Even the draft Bill says that GDA will get monies received or due to be received by state government and unspent on account of EDC, along with share of money collected by MCG, prior to commencement of GDP Act. There are other provisions in the draft bill to provide financial strength/stability to GDA.
Road to better coordination
Considering that Gurugram’s development has been bogged down by multiplicity of authorities, the GDA will ensure complete coordination with all other agencies. As V. Umashankar puts it, “As the infra planning and implementation body, GDA will see to it that other government agencies, work in tandem, in accordance with the plan, ensuring integrated development”. Adds MC Gupta, “GDA is a great necessity, considering population explosion and unprecedented expansion of Gurugram on both sides of NH8, amidst lack of coordination”.
The mechanics of development
GMC created constitutionally, will remain in force, while in case of HUDA and HSIIDC, within three months of commencement of GDA Act, a scheme will be outlined to transfer HUDA/HSIIDC property, interest, interest in property, right and liabilities to GDA.
Mind the gaps
But, as absolute power of the development authority, has been curtailed by keeping licensing and CLU out of its purview, doubts are being raised about its efficacy. S.P Gupta, DG, HIPA says that HIPA panel had clearly said that GDA will enjoy the powers of licensing and CLU which currently vests with the Department of Town & Country Planning, Haryana. EveryDevelopment authority enjoys the licensing and CLU power. Raheja offers a solution, “As licensing process involves high level administrative and policy decision and coordination at government level, the office of Town & Country Planning should operate out of Gurugram, especially as 80 per cent of licenses are from Gurugram”.There is another significant gap between the HIPA draft and the one put up by the government. While the former made a clear case for appointing an officer of the rank of additional chief secretary as CEO to make GDA a powerful body for effective coordination, the latter settled for a junior officer of the rank of Principal Secretary, to head the development authority. Says M.C Gupta, “GDA has to be an effective agency whose writ must run. I believe GDA should be headed by a very senior level officer as he has to coordinate with senior officers and will have to negotiate with multilateral agencies at international level. We wanted it to be like Noida Development Authority, with all the powers vesting with it and state government and its departments delegating their powers and responsibilities to GDA. I would say that whatever we put in the draft, we stand by it. Ultimately, it is for the government to decide what is in the best interest of GDA. Fortunately, we have a very capable officer, V. Umashankar as OSD, GDA, overseeing the process of formation of GDA, especially carrying out comprehensive consultation process with all the stakeholders”. Adds P. K Jain, Founder President, Gurugram Chamber of Commerce & Industry, “Whatever form or structure of GDA is finally there, it should be a single agency, collecting taxes , taking care of water supply, sewerage, solid waste disposal etc, besides looking after maintenance. The uniform and harmonious building construction should be ensured and GDA should have financial powers and financial stability”. Pankaj Kumra, Retd Chief Engineer, HUDA endorses GCCI view that GDA should have a powerful financial structure besides having strong land acquisition, town planning and architectural wings. Meanwhile, V Umashankar is treading cautiously towards flawless formation of GDA, with right structure, accountability and credibility, by adopting transparent and consultative approach. As GDA heads towards becoming a reality, general public, industry, businesses and other stake holders are pinning great hopes about the transformation of Gurugram. As Raheja sums up, “The real estate business has been suffering due to deficient infra. But GDA will ensure ease of doing business, ushering in transparency and making real estate in Gurugram as an attractive asset class and in turn pushing up its demand”.
Structure of GDA
Chairman — Chief Minister
Ex-officio members— Town & Country Planning Minister, ULBs Minister, MPs, MLAs, Mayor GMC, CEO, GDA, Chief Administrator, HUDA, Commissioner, MCG, Deputy Commissioner. Ex-officio members (nominated by government) — 6Ex-officio members (experts from urban infra, governance, public administration, urban forestry, engineering, town planning)— 6
RecommendationsThe panel recommended absolute powers for GDA as an autonomous body with entire district and even KMP Expressway and proposed Global Corridor under its jurisdiction. It was recommended that a serving IAS officer of the rank of additional chief secretary should head the authority that will enjoy the powers of licensing and change of land use, which currently vests with the Department of Town & Country Planning, in addition to powers of planning and development of infrastructure. The panel also noted that urban areas and controlled areas of Gurugram district will cease to vest in HUDA and it will cease to exercise jurisdiction in that area. Further it was mentioned that all land, buildings and immovable properties in Gurugram district and vested in HUDA for carrying out development work, shall pass on to GDA. Similarly, assets and liability of Haryana State Industrial & Infrastructure Corporation (HSIIDC) will be transferred to GDA.
What the draft Bill saysThe Draft Bill provides for integrated planning and coordinated development of urban infra by coordinating with GMC, boards, companies or other agencies involved in the provision of infrastructure, urban amenities and management of urban environment in notified area. Within a period of 9 months from the GDA Act coming into force, infrastructure development plan will be prepared including (but not limited to) roads, water supply, sewerage disposal, storm water drainage, solid waste management, public transportation, urban forestry and other urban amenities required for reasonable standard of living. To facilitate the functioning of GDA, coordination committees (consisting of GDA/government officers) and standing committees ( including citizens) will be formed. There will be a Citizen Advisory Council as well.