Indian Commercial Real Estate Sailing high on RERA, GST and REITs

The year 2016, would be recognized as the year of many key decisions like GST (Goods and Services Tax), RERA (Real Estate Regulatory Authority), Smart City Projects, demonetization etc. and many more lying in the pipeline. Being one of the major contributors into the Gross Domestic Product (GDP) and connected to more than 25 allied industries, year 2016 had opened new windows for commercial real estate sector. Going forward in 2017 commercial realty market expects authorization of key policies and reforms that largely favors the segment.

Government’s current efforts to bring transparency in the sector have been implemented for improving the ease of doing business in this sector, as well as to boost investors’ confidence. Once implemented in the right spirit, these measures are likely to fascinate more institutional investments and FDI into the Indian commercial realty market.

Let’s look on to some of the reforms and see how they have benefited the Indian Commercial Real Estate Market:

Real Estate (Regulation and Development) Act or RERA: This act was passed in March 2016, covers both residential and commercial realty segments. RERA has the potential to bring in greater transparency, improve the bargaining power of the consumer (vis-à-vis the companies) and be a key enabler of genuine demand over the longer term. This indeed is a huge step towards solidifying the commercial real estate business in India.

According to industry experts, the Real Estate Regulation Act has boosted the sentiments in the commercial segment as the sector is expected to become much more transparent and organised which in turn will benefit all stakeholders.

Goods and Services Tax (GST): The amendment of this landmark Good and Services Tax (GST) has been India’s biggest structural reform in decades. It is expected that under the GST regime, there would be a smooth flow of credit and current restriction on construction related credits not being available for offset is likely to be removed.  This would help to reduce the project costs in the hands of the developer, and have a positive effect on rentals.

According to the industry experts, this landmark bill would reduce harassment which is there due to multiple taxes today.

Moreover, the GST regime is expected to impart greater transparency through market mechanism, it is imperative that real estate transactions forms an integral part of the proposed GST design. 

Real Estate Investment Trusts (REITs): The introduction of REITs is yet another game changing policy initiative by the Government.

According to industry experts, with huge potential in Indian commercial market REITs will facilitate investments into the country. Currently, around 229 million sq. ft of office space is REIT-compliant. Even if 50% of this space were to get listed in the next few years, experts are looking at a total REIT listing worth $18.5 billion. As India is witnessing a growth in its commercial assets, there will be more opportunities for REITs in upcoming years.

With a compelling need for additional funding mechanisms, the effort to allow REITs is yet another step towards the organised development of the sector.

The passage of GST and RERA have been one of the biggest highlights of the year that is sure to benefit the commercial sector in the long run. The commercial real estate sector has been continuously endeavouring to improve their stretched capital structure and with Govt initiatives industry has high hopes to retain its position as a bright spot in the global economy, with better growth prospects expected to support office space leasing in 2017.

Additionally, the policy announcements and reforms to recuperate the commercial real estate space, including the relaxation of Foreign Direct Investment (FDI) norms, introduction of 100 smart cities, direct and indirect tax benefits for affordable housing projects, the implementation of RERA, GST and Real Estate Investment Trusts (REITs) have helped in generating a positive outlook in the commercial segment. These reforms and policies are further expected to work towards enabling ease of doing business in the country, while supporting corporate entities entering or expanding their footprint across leading cities in India.