Kuldeep Tiwari (MeraNews, Ahmedabad): The forthcoming assembly elections in Gujarat may well decide the future of the real estate industry in the state, with Prime Minister Narendra Modi’s dream of providing affordable housing to the poor standing in the balance.

While the real estate industry is yet to overcome the effects of demonetization, the goods and services tax (GST) and the Real Estate Regulatory Authority (RERA) Act have stifled the recovery process.

According to realty experts, the 12 percent GST on the sale of property has made clearing the backlog more difficult for an industry that is already going through a slowdown, and the compliance norms under RERA are stringent enough that developers as well as the authorities concerned are unable to sort out the minutia for faster clearance of projects.

The real estate industry may have initially welcomed RERA and GST, but problems in implementation have raised concerns about the need for smooth functioning and the ease of doing business.

Ease of doing business

A recent report by the World Bank placed India at No. 100 in terms of ease of doing business. Union finance ministry Arun Jaitley praised the Bharatiya Janata Party (BJP) government for its policies, which he said led to the country’s 30-place jump over the previous year.

But Rahul Gandhi, vice-president of the Congress party, came down hard to the report. At a rally in Gujarat on 1 November, he said, “There is nothing like ease of doing business in India as goods and services tax and demonetization have ruined everything. This improved ranking is good only to make finance minister Arun Jaitley happy.”

“‘Ease of doing business’ has become ‘cease of doing business’ for micro, small and medium enterprises under the ruling government,” said Congress spokesperson Randeep Singh Surjewala.

The Doing Business report ranks countries on how easy or difficult it is for firms to conduct business activities based on 10 indices, including starting a business, getting electricity and construction permits, and paying taxes.

GST and political will

The GST rate is too high for real estate developers, which are forced to pass on the costs to buyers, said Paresh Gajera, president of the Rajkot Builders Association, which has sought a reduction in the rate from the state government.

“We have asked that instead of 12 percent, the GST rate should be reduced to 6 percent. If they can’t do that, then the stamp duty of 6 percent (including registration fees) should be abolished,” he said, adding, “The government has given an assurance that environmental clearance will be given by local authorities for plots above 2 lakh sq. ft. Three months have passed since the announcement, but the local authorities are not clearing files.”

Of the 70 applications for new projects under RERA in Rajkot, only three files have been cleared, and strong political leadership is needed to solve the problems and drive growth in the real estate industry, said Gajera.

Suresh Patel, the Surat president of the Confederation of Real Estate Developers’ Associations of India (Credai), echoed this view.

“Because of GST, many sectors, including textiles, have been hit badly. The cumulative effect is seen on real estate, too. Investors are getting desperate and looking for exits, fearing no returns. Almost 90 percent of transactions are in the wait-and-watch mode because of the elections,” he said.

“A good political structure can help us function better,” he said.

“The BJP is listening to the industry’s demands because of the forthcoming elections and the crises the party is facing,” said and Ahmedabad-based developer, speaking on condition of anonymity. Once the election results are out, whichever party comes to power will turn a deaf ear to us, this person said.

Some realty experts say changes in GST are needed immediately as worst hit are those from the Economically Weaker Section (earning less than Rs1 lakh per year) and the Lower Income Group (LIG) that earn between Rs1 lakh and Rs2 annually.

Political will is required if Modi’s target of providing 50 million houses by 2022 is to be achieved, they said.

“The government must reduce stamp duty to 1 percent, and the registration charges should be reduced to a token amount of Rs200 or Rs300 to boost acceptance of GST. This will motivate developers to come up with more affordable housing schemes,” said Vijay Shah, an Ahmedabad-based real estate developer and consultant.

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