2016’s Government Rules & Reforms That Made a Big Impact on Real Estate
2016 saw the introduction of many new rules and regulations to tackle the issues of black money and corruption. These changes were brought about to introduce more transparency and instil greater customer confidence.
Real estate, one of India’s largest economic sectors, also saw many reforms and the introduction of governing bodies. Let’s a take a quick look at them:
Until 2016, the real estate sector did not have a regulating body. This created an environment where customers were slightly more vulnerable to Ponzi schemes and unethical trade practices of some builders.
In March 2016, the Rajya Sabha passed the Real Estate Regulatory Bill. ‘RERA’ (Real Estate Regulatory Authority) was thus brought into existence. This new authority introduced a set of new rules in the buying and selling process of real estate. With this move:
- Every developer has to park 70% of the project funds in one bank account. This keeps a tight check on the funds and its whereabouts. It also stopped the builders from using the booking money of one project as investments in other projects.
- Carpet area of the project has to be clearly defined instead of the super-built up area.
- The buyer can now call the developer anytime within 1 year after taking possession to demand after sales services or seek redressal for any inadequacies in the project.
- Any developer found violating the order of appellate tribunal of RERA, could face a jail term of up to three years and a fine.
A Benami transaction is one in which property is transferred to one person for a consideration paid by another person. Using this type of transaction, many people were able to legitimise their illicit funds. To tackle this issue the government had passed the Benami Transaction Act in 1988. However, in August 2016, an amendment reinforced this act and made it stricter.
- The new amendment increased the punishment and fine for those involved in such a transaction. It was raised up to 7 years.
- Providing false information about a property is imprisonment for up to five years and fine.
- Any property held Benami was to be confiscated directly by the government without any compensation in return.
On 8th November, the Government of India implemented the demonetisation of Rs. 500 and Rs. 1000 currency notes. This was a counter-measure against the issue of black money and corruption.
Subsequently, new Rs. 500 and Rs. 2000 notes were introduced.
The move has a direct effect on the on the buying and selling of property. After a short adjustment curve, the move is expected to bring in a multitude of positive changes. Here’s a list of a few:
- More Transparency:
The lending power of the RBI has increased tremendously thanks to the large deposits of cash. Hence, banks can now afford to reduce interest rates on home loans.
- Lower interest rates on home-loans:
As cash transactions drop and electronic transactions increase, you can expect more clarity in the whereabouts of money. This will improve the confidence of home buyers.
- Prices expected to go up:
Due to the new reforms, the cost of construction is expected to rise in the near future. This will raise the final cost of finished homes and apartments. Hence, it would be ideal to invest in new homes in the current market situation.