Reasons to smile for buyers under the Real Estate Bill

Buying a house earlier used to be quite a tedious process for the buyers. The new real estate bill has brought about reasons to cheer for them as it has made the buyers more accountable for various things thus ensuring the protection of buyers interests. Here are five of them:

Regulation for Real Estate

Under the new Real Estate Bill, each state and union territory within the country should help set up regulatory bodies with an aim to resolve real estate disputes. All large home and office projects as well as the brokers selling them will have to be registered with these proposed regulatory bodies.

According to data from PropEquity, in cities such as New Delhi, Mumbai and Bangalore there are around 1 million apartments that were due to be completed between 2012-2015 but remain unfinished. With this Bill, the grievances of large number of home buyers who didn’t have much legal recourse will be addressed.

Safeguarding of Buyers’ Money

Traditionally, developers in India used to take money for buyers before the completion of property and use the same for reasons other than the construction such as buying additional land. However, with the dip in sales of homes the developers are experiencing a financial crunch to complete their projects on time, sold years ago to buyers.

Under the new bill, the builders have to keep aside 70% of the money collected in a dedicated bank account with the sole purpose of utilizing the money for the said project. However, the bill has a caveat whereby the states have the authority to bring it down from 70%.

Equality in penalties for delays

The Bill states that “both builders and buyers will have to pay the same rate of interest in case of any delay on each other’s part.” Earlier, upon delay of a project, the buyers had to pay a penalty as much as 18% a year if they were late in paying their installments to the builder while the builders had to pay less than 10% a year for any delays.

Payment to be made as per Carpet Area

As per the new Bill, builders can only sell homes as per carpet areas, which has been defined as the area in which buyers in finally live, and not super built up areas that required them to pay a part for the construction of common areas such as lobby, stairs etc.

 Builders to get approvals

Earlier, certain builders gained notoriety for initiating projects without getting the pre-requisite approvals for projects which in most cases never came at all. As per Crisil, the new Bill “seeks to protect interests of buyers by incorporating a clause that projects can be launched only after the developer secures all statutory clearances from relevant authorities.”

Budget 2016 for home loan buyers

Home loans for purchase or construction of a house provides few income tax benefits to the borrowers. Currently, there is an income tax benefit for the interest payments and principal amount on home loans. However, it is felt that few existing provisions are a tad unfair, which can be addressed by the finance minister during the budget.

Partisan treatment to borrowers of self occupied property

When one talks about the interest on the loan for purchase or construction of a house, the prevailing law behaves differently with properties that are occupied by owner differently from the one that is let out or deemed to be let out.

Normally, an individual tax payer can declare interests benefits of upto Rs.2 lakh in a year for a self occupied property including the interest that the person is permitted to avail when the said property is still under construction. In contrary, the law allows deduction of full interest payment for individuals borrowing money with a view to gain profits from the appreciation of property prices. In an ideal situation, the existing clause should be overturned in a manner such that individuals borrowing with a view to benefit from interest arbitrage are not allowed while allowing genuine borrowers the full deduction on interest payment.

Further, it is felt that the limit of Rs.2 lakhs is considerably low, keeping in view the present rate of properties. If we take an example, the cost of a 1BHk may come to Rs. 1 crore in Mumbai. At the existing average home loan rate of 9.50%, the buyers’ annual interest liability will come to Rs.7.6 lakhs if he takes a home loan of Rs.80 lakhs. Keeping this in view, even if the prevailing policy of allowing full deduction on interest payment is not reversed, the government should at least do away with the limit of Rs.2 lakhs for one self-occupied property and bring them on par with let-out property.

Curbing the interest deduction for delayed completion

 The existing law distinguishes between properties to compute the amount of interest deduction. This is based on whether the completion of the construction of the property is within the duration of three years from the end of the year the loan was taken.

Currently the interest allowance is only Rs.30,000 if the construction of the property is not completed within a period of 3 years. However, the interest deduction will be Rs.2 lakhs if the property is constructed within the time period of 3 years.

In recent times, it is observed that a significant majority of home buyers are purchasing under construction properties having possibility of delay in its completion. Therefore, it may look a tad unfair on the part of the government to penalise buyers who are paying for their home loans as well as rental accommodation.

The stipulated timeframe of three years for completion of construction is in stark contrast to the actual situation. A report by PropEquity in May 2015, states that the delay in handing possession varies from 18 months in Mumbai Metropolitan Region to 23 months in National Capital Region (NCR). Due to this very reason, only a few home loan borrowers are able to claim the full income tax benefit of Rs.2 lakhs.