Real Estate Industry
Not all private property is ‘material resource of community’ for redistribution: Unpacking the SC verdict
Note4Students
From UPSC perspective, the following things are important :
Mains level: Private Property; DPSP;
Why in the News?
A 9-judge Constitution Bench of the Supreme Court, in a majority judgment (8:1), held that not every private resource can be considered a ‘material resource of the community’ to be used by the government to serve the ‘common good’ under Article 39(b).
- This overturns the earlier interpretation formed in 1977 that has been followed by the Supreme Court till 1997.
What are Constitutional Provisions?
What were earlier judgments?
What is the current ruling?
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What criteria should determine if a privately owned resource qualifies as a ‘material resource of the community’?
- Purpose and Public Utility: Privately owned resources may be classified as “material resources of the community” if they are essential for societal welfare, addressing collective needs, or fulfilling significant public purposes, such as energy, water, or land critical for infrastructure.
- Proportionality and Fairness: The court emphasized that any state action must be proportional, balancing public benefit with the impact on private owners.
- Economic Impact and Control: Resources that substantially impact the national economy or are crucial for maintaining societal equity (such as natural resources) may be considered community resources, but this does not apply to general private property.
How does this ruling impact the balance between individual property rights and the state’s ability to intervene for public welfare?
- This ruling reinforces individual property rights, clarifying that private property cannot be arbitrarily acquired under the guise of benefiting society. The state must justify the acquisition based on substantial, verifiable public welfare needs.
- Limitations on State Power: By rejecting an expansive interpretation of Article 39(b), the court limits state power, ensuring that only properties directly tied to public interest and welfare fall under this category.
What are the potential economic implications of this ruling in India?
- Investment Climate: This ruling strengthens protections for private property, likely improving investor confidence by assuring that property rights are safeguarded from excessive state intervention.
- Economic Development and Social Equity: By narrowing the scope of Article 39(b), the ruling limits redistributive policies to sectors where public welfare is a clear priority, allowing economic resources to be distributed in a manner that considers social equity while respecting individual rights.
- Real Estate and Industrial Sectors: The ruling could positively affect sectors with high-value assets, such as real estate and industry, as businesses will have greater certainty regarding property ownership and security.
How might this decision influence future legal interpretations and legislative actions?
- Refined Scope for Article 39(b) Applications: Future legislation under Article 39(b) must specifically justify how resources qualify as “material resources of the community,” likely limiting nationalization or acquisition to specific, strategically important sectors.
- Increased Judicial Scrutiny on Property Rights: Courts are likely to more critically evaluate state actions that aim to redistribute private property, requiring robust evidence of public interest and alignment with constitutional principles.
- Potential for Policy Revisions: Laws that invoke Article 39(b) and related provisions may need to be reviewed to ensure they comply with this interpretation, leading to a more nuanced application of public welfare policies.
Way forward:
- Establish Clear Guidelines for Public Interest Acquisition: The government should define transparent criteria for categorizing “material resources of the community,” ensuring acquisitions serve substantial public welfare needs and align with societal priorities, especially in areas like infrastructure and essential services.
- Strengthen Judicial and Legislative Safeguards: Introduce legal safeguards to protect individual property rights, allowing courts to rigorously assess state actions on property acquisition, ensuring proportionality, fairness, and adherence to constitutional principles.
Mains PYQ:
Q How did land reforms in some parts of the country help to improve the socio-economic conditions of marginal and small farmers? (UPSC IAS/2021)
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Real Estate Industry
Only 4 States adopt Model Tenancy Law
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Model Tenancy Act
Mains level: Read the attached story
More than a year since the Union Housing and Urban Affairs Ministry circulated the Model Tenancy Act (MTA), only four States had revised their tenancy laws to be in line with the MTA.
What is the Model Tenancy Act?
- MTA is aimed at opening up of the vacant housing stock for rental housing purposes and helping bridge the trust deficit that exists between tenants and landlords by clearly delineating their obligations.
- The housing and urban affairs ministry had floated the draft model tenancy law in July 2019.
Major provisions of MTA
(1) Rent Court and Rent Tribunal:
- To ensure speedy redressal of disputes, the Act calls for establishing a separate Rent Court and Rent Tribunal in every state/UTs to hear appeals for matters connected to rental housing.
- Only the rent court and no civil court will have the jurisdiction to hear and decide the applications relating to disputes between landowner and tenant and matters connected with it.
- It calls for the disposal of complaints and appeals by the Rent Court and Rent Tribunals within 60 days.
(2) Tenancy Agreements:
- It also seeks to establish an independent authority in every state and Union Territory for the registration of tenancy agreements.
- Under the Act, unless otherwise agreed in the tenancy agreement, the landlord will be responsible for activities like structural repairs except those necessitated by damage caused by the tenant etc.
- On his part, a tenant will be responsible for drain cleaning, switches and socket repairs, kitchen fixtures repairs, replacement of glass panels in windows, doors and maintenance of gardens and open spaces, among others.
For residential and commercial properties
- The Act will apply to premises let out for residential, commercial or educational use, but not for industrial use. It also won’t cover hotels, lodging houses, inns, etc.
- This model law will be applied prospectively and will not affect existing tenancies.
- It seeks to cover both urban as well as rural areas.
- The Act says that a security deposit equal to a maximum of two month’s rent in the case of residential premises and a maximum of six month’s rent in the case of non-residential premises would have to be paid by the tenants.
How will states implement it?
- As per the MoU signed under PMAY-U, the states and union territories would legislate or amend the existing rental laws on the lines of the MTA.
Why was a need felt to bring this on?
(1) For a rental economy
- Without a well-rounded rental policy and the proper implementation of the rental contracts, there was no sound mechanism to resolve tenant-landlord conflicts.
- Property owners find it challenging to evict tenants if they misuse the property.
- To steer clear of such complications, such property owners often chose to keep these homes vacant instead of renting them out.
(2) Unattractive rental yield
- In India, the rental yield for residential property is quite low, even in bigger cities. It is in the range of 1.5% to 3% of the capital values.
- This has disincentivized people from investing in second or third homes which could be rented out.
- Often, they also prefer to leave their properties vacant in case they return to India.
- NRIs avoid leasing their residential properties for fear of squatters and dealing with the legalities of eviction.
How will MTA help?
(1) Unlocking homes
- It will unlock vacant houses for rental purposes
- It will enable the creation of adequate rental housing stock for all the income groups thereby addressing the issue of homelessness.
(2) Helping migrants
- Rental housing is a preferred option for students and migrants.
- It will balance the rights of both landlords and tenants.
(3) Effective negotiations
- There is no monetary ceiling under MTA, which enables parties to negotiate and execute the agreement on mutually agreed terms.
- It will give confidence to landlords to let out their vacant premises, the housing ministry said.
- The Act also tries to address how a renter can legitimately increase the rent.
(4) Control over encroachments
- It has proposed limiting the advance security deposits to two months’ rent and has also suggested heavy penalties for tenants who decide to overstay.
- Those who do may have to shell out double the rent for two months and even four months.
(5) Rights of tenants
- The landowner cannot cut power and water supplies in case of a dispute and would have to provide a 24-hour notice to tenants to carry out repair work.
- Should the landlords wish to increase the rent, they will need to provide a three-months notice to the tenants.
- These measures would go a long way in protecting the rights of a tenant as it regulates the rent hikes that tenants have had to face.
Challenges ahead
While the proposals of the Act have been widely welcomed, their implementation may not be very simple.
(1) Not binding nature
- The Act is not binding on the states as land and urban development remain state subjects.
- Like in the case of RERA, the fear is that states may choose not to follow guidelines, diluting the essence of the Model Act.
(2) Issues over paltry rents
- Also, the Model Act is prospectively applicable and will not affect the existing tenancies.
- The repeal of rent control Acts can be governed by political exigencies.
- This may be a complicated process in cities like Mumbai, where tenants have occupied residential properties in prime areas for absurdly low rents.
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Real Estate Industry
RERA
Note4Students
From UPSC perspective, the following things are important :
Prelims level: RERA
Mains level: Real Estate issues
The Supreme Court has asked the Chief Secretaries of the States to respond to queries raised by the Centre on the implementation of rules framed under the Real Estate (Regulation and Development) (RERA) Act, 2016 in their respective jurisdictions.
What is RERA, 2016?
- The Real Estate (Regulation and Development) Act, 2016 seeks to protect home-buyers as well as help boost investments in the real estate industry.
- It establishes a Real Estate Regulatory Authority- RERA in each state for regulation of the real estate sector and also acts as an adjudicating body for speedy dispute resolution.
- It was enacted under Entry 6 and 7 (dealing with contracts and the transfer of property) of the Concurrent List.
- It is followed by the principle “buyer is the king and builders will have to ensure compliances to avoid punishment”.
- Its main objective is to reduce delay in the work or timely delivery of the project without compromising the quality.
Objectives of this Act
It has the following objectives:
- To protect the interest of the allottees and ensure their responsibility
- To maintain transparency and reduce the chances of fraud
- To implement Pan-India standardization and bring about professionalism
- To enhance the flow of correct information between the home buyers and the sellers
- To impose greater responsibilities on both the builders and the investors
- To enhance the reliability of the sector and thereby increase confidence amongst the investors
Key Provisions of RERA Act
- Compulsory registration: According to the central act, every real estate project (where the total area to be developed exceeds 500 sq mtrs or more than 8 apartments is proposed to be developed in any phase), must be registered with its respective state’s RERA.
- Establishment of state level regulatory authorities: It provides for State governments to establish more than one regulatory authority such as RERA to:
- Register and maintain a database of real estate projects; publish it on its website for public viewing
- Protection of interest of promoters, buyers and real estate agents
- Development of sustainable and affordable housing
- Render advice to the government and ensuring compliance with its Regulations and the Act
- Establishment of Real Estate Appellate Tribunal: Decisions of RERAs can be appealed in these tribunals.
- Mandatory Registration: All projects with plot size of a minimum 500 sq.mt or eight apartments need to be registered with Regulatory Authorities.
- Deposits: Developers needs to keep 70% of the money collected from a buyer in a temporary pass through account held by a third party (escrow account) to meet the construction cost of the project.
- Liability of the developer: A developer’s liability to repair structural defects would be for 5 years.
- Cap on Advance Payments: A promoter cannot accept more than 10% of the cost of the plot, apartment or building as an advance payment or an application fee from a person without first entering into an agreement for sale
- Carpet Area over super built-up: Clearly defines Carpet Area as net usable floor area of flat. Buyers will be charged for the carpet area and not super built-up area.
- Punishment for non-compliance: Imprisonment of up to three years for developers and up to one year in case of agents and buyers for violation of orders of Appellate Tribunals and Regulatory Authorities.
Which projects can get RERA approval?
- Commercial and residential projects including plotted development.
- Projects measuring more than 500 sq mts or 8 units.
- Projects without Completion Certificate, before the commencement of the Act.
- The project is only for the purpose of renovation/repair / re-development which does not involve re-allotment and marketing, advertising, selling or new allotment of any apartments, plot or building in the real estate project, will not come under RERA.
- Each phase is to be treated as standalone real estate project requiring fresh registration.
Benefits offered by the RERA Act
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Real Estate Industry
Capital Gains Tax
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Capital Gains Tax
Mains level: Not Much
The capital gains tax structure in India is complicated, and it is time for a relook since the union budget has provisions for 30% tax on cryptocurrency.
What is Capital Gains Tax?
- Capital gains tax is levied on the profits made on investments.
- It covers real estate, gold, stocks, mutual funds, and various other financial and non-financial assets.
Types
- It is divided into long-term capital gains tax (LTCG) and short-term capital gains tax (STCG) depending on how long you have held the investment in question.
- Unlike income tax, the percentage of tax does not change on the basis of your overall tax slab.
- The LTCG tax, excluding surcharge, on equity is the same for gains of ₹10 lakh or ₹10 crore.
- There is also a separate set of deductions that apply to LTCG, which do not apply to ordinary income.
Why is it so complicated?
Capital gains tax is complicated for a few primary reasons.
- First, the rate changes from asset to asset. LTCG tax on stocks and equity mutual funds is 10% but on debt mutual funds is 20% with indexation.
- Second, holding period changes from asset to asset. The holding period for LTCG tax is two years in real estate, one year for stocks, and three years for debt mutual funds and gold.
- Third, exemptions available against it come with their own complex conditions. For instance, buying a house after selling one can get you an exemption, but the new house must be bought in two years or built in three years of the sale.
Is cryptocurrency taxed as capital gains?
- The 2022 budget has proposed a 30% tax on cryptocurrency, which is higher than capital gains tax in many cases.
- Besides, under capital gains tax, investors can adjust profits and losses on different investments against each other or against profits/losses in the future.
- However, this cannot be done with cryptocurrency.
What distortions does it create?
- As capital gains tax is the same regardless of your overall income it can compound inequality.
- For instance, a person with a salary of ₹40 lakh will pay 30% tax on it but just 10% LTCG tax on gains from stock trading.
- A person with a salary of ₹5 lakh will pay a 5% tax on it but the same 10% LTCG tax on stock trading.
- Second, the smaller one-year qualifying period for LTCG in stocks compared to three years in debt mutual funds may encourage short-term trading in equity.
What can be done to fix these anomalies?
- The government can bring about uniformity in rates and holding periods for various assets to ensure that the tax for one asset is not more attractive than another.
- A uniform and long holding period to qualify for LTCG can also discourage short-term trading and speculative behavior in assets such as stocks.
- The exemptions for LTCG such as reinvestment in another house property or capital gains bonds can also be made simpler, with fewer conditions.
- Small investors can also be given relief by reducing rates of capital gains.
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Real Estate Industry
Impact of RERA on real estate sector
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Article 254 of Indian Constitution
Mains level: Paper 2- RERA and its benefits to the consumers
The article highlights the various provision of RERA and its overall impact on the sector.
How it changed the real estate sector
- Real Estate (Regulation and Development) Act (RERA) was enacted in 2016 and it had been in the works for more than a decade.
- RERA has infused governance in a hitherto unregulated sector.
- Along with demonetization and GST, it has, to a large extent, cleansed the real estate sector of black money.
- It has transformational provisions, conscientiously addressing issues that have been a constant bane for the sector.
Important provisions of RERA
- The Act stipulates that no project can be sold without project plans being approved by the competent authority and the project is registered with the regulatory authority.
- This provision ended the practice of selling on the basis of deceitful advertisements.
- Promoters are required to maintain “project-based separate bank accounts” to prevent fund diversion.
- The mandatory disclosure of unit sizes based on “carpet area” strikes at the root of unfair trade practices.
- The provision for payment of “equal rate of interest” by the promoter or the buyer in case of default reinforces equity.
- These and many other provisions have empowered consumers, rectifying the power asymmetry prevalent in the sector.
How RERA is an effort in cooperative federalism
- Though the Act has been piloted by the Central government, the rules are to be notified by state governments.
- The regulatory authorities and the appellate tribunals are also to be appointed by them.
- The regulatory authorities are required to manage the day-to-day operations, resolve disputes, and run an active and informative website for project information.
- Since RERA came into full force, 34 states and Union territories have notified the rules, 30 states and Union territories have set up real estate regulatory authorities and 26 have set up appellate tribunals.
- The operationalization of a web-portal for project information, which is at the heart of ensuring full project transparency, has been operationalized by 26 regulatory authorities.
- Around 60,000 projects and 45,723 real estate agents have been registered with regulatory authorities.
- Twenty-two independent judicial officers have been appointed to redress consumer disputes, and 59,649 complaints have been disposed-off.
Consider the question “What were the various problems faced by the consumers in real estate sector? How various provisions in RERA helped in the protection of consumers’ interests?”
Conclusion
RERA is to the real estate sector what SEBI is to the securities market. It helped consumers from the various malpractices in the real estate sector.
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Challenges, opportunities & criticism of the Real Estate Regulatory Bill 2016
The Real Estate Regulatory Bill, 2016 is being hailed as a much-needed step to reform the real estate sector. It will help regulate the sector and bring in clarity for both buyers and developers.
What was the need for regulation in the real estate?
- The real estate sector has some issues such as a lengthy process for project approvals, lack of clear land titles, and prevalence of black money
- There wasn’t complete transparency as far as govt approvals were concerned
- There were also instances when projects were sold without adequate clearances
- The delayed projects, sometimes by up to 6 years and arbitrary changes in layout plans are rampant in the sector
How does the Bill seeks to regulate the sector?
The basic thrust of this Bill is to regulate the delivery of projects to home buyers. It provides them a legal safeguard for their investment, and seeks to address timely delivery of houses. It seeks to enforce the contract between the developer and buyer and act as a fast track mechanism to settle disputes
- It establishes state level regulatory authorities called Real Estate Regulatory Authorities (RERA)
- The Bill establishes state level tribunals called Real Estate Appellate Tribunals. Decisions of RERAs can be appealed in these tribunals
- It makes mandatory the disclosure of all information for registered projects like details of promoters, layout plan, land status, schedule of execution and status of various approvals
- The Bill prohibits a developer from changing the plan in a project unless two-thirds of the allottees have agreed for such a change
- It says that builders must specify the time-frame for completion of projects and stick to it, or be ready to pay penalties
- The Bill mandates that 70% of the amount collected from buyers of a project be used only for construction of that project < This provision will effectively allow developers to continue their practice of diverting funds collected for a project towards land acquisition or other projects, and will work in their favour by also allowing them to grow their land and/or project portfolio>
How will the Real Estate Regulatory Authorities help improve the sector?
- Residential real estate projects need to be registered with RERAs, except few
- Promoters cannot book or offer these projects for sale without registering them
- Real estate agents dealing in these projects also need to register with RERAs
- On registration, the promoter need to provide details of the project to the RERA
Challenges ahead
- The Bill will make life difficult for builders, as they would face more red-tapeism now, especially in procuring relevant approvals.
- This Bill does not address the developers demand of a single-window clearance from the govt
- The implementation of the Bill is up to the states, it leaves builders with greater chances of being harassed
Impact
- Timely completion of projects would lead to a steady increase in supply of homes
- It is expected that these measures will eventually bring down home prices and increase demand
- It will be good for the overall economy too, as the housing sector has strong backward (cement, steel and other building material industries) and forward (furniture and furnishings, interior decoration, electrical and electronics) linkages with other industries
- More number of job creation in the economy
Criticism
- The builder lobbies argued that the bill should have a time-frame for municipal and other authorities to give timely approvals, because the delay in approvals lead to delays in handing over possession of apartments
- In terms of pricing, which is governed by circle rates, it will be difficult to monitor
Future
- The states’ support for faster clearances to projects will be required to make this Bill successful
- Govt is also trying to bring in a National Urban Rental Housing Policy, which would take into account the requirements of tenancy hassles in modern days
Published with inputs from Pushpendra
Sagarmala Project: Smart ports for Blue Revolution in India
The Union Cabinet chaired by the Prime Minister Modi, on March,2015 gave its ‘in-principle’ approval for the concept and institutional framework of Sagarmala Project. Let’s take a glance on it.
What’s the prime objective of Sagarmala?
The prime objective of the Sagarmala project is to promote port-led direct and indirect development and to provide infrastructure to transport goods to and from ports quickly, efficiently and cost-effectively.
What’s the current issue and background of ports in India?
- At present there are around 200 ports (small and big) in the country, of these, only 12 are major ports which are government owned ports, which handle about 58% of sea-borne traffic.
- These major ports operate as Trusts under the Major Ports Trust Act, 1963, except for the Port of Ennore, which is a company under the Companies Act.
- There are legacy issues with these govt owned major ports, they do not keep pace with emerging technology, requirements of international trade, emerging trends in containerisation, flexible rules, size of ships etc.
Which are the 12 Major Ports ?
These are Kolkata (including Dock Complex at Haldia), Visakhapatnam, Chennai, V.O. Chidambaranar (Tuticorin), Cochin, New Mangalore, Mormugao, Jawaharlal Nehru Port Trust (JNPT), Mumbai, Kandla and Ennore.
Just, Look back into the history?
In 2003, then PM Vajpayee proposed Project Sagarmala with following features:
- Setup Sagarmala Development Authority (Similar to National highway authority of India).
- It will get money via Maritime development cess. (5 paise per kg on cargo).
- It will improve ports, shipping industry, inland water transport, coastal shipping.
- PPP and FDI to gather more investment.
Then, which are the Key pillars to achieve Smart-development ?
- Supporting and enabling Port-led Development through appropriate policy and institutional interventions.
- Providing for an institutional framework for ensuring inter-agency and states’ collaboration for integrated development.
- Port Infrastructure Enhancement, including modernization and setting up of new ports.
- Efficient Evacuation to and from hinterland.
What are some of the measures to make Smart Ports?
- Ports should be registered as Companies under Companies Act.
- The port administration should only look after the provisions of infrastructure and safety and not day-to-day running of the port
- There is still no regulation to control the trade practices.
- Hence, there is a dire need to introduce a regulatory architecture that takes care of ex-ante declaration of rates of services.
Then, what’s the plan to implement such a vast initiative?
- For a comprehensive and integrated planning for “Sagarmala”, a National Perspective Plan (NPP) for the entire coastline shall be prepared within six months.
- It will identify potential geographical regions to be called Coastal Economic Zones (CEZ).
- While preparing the NPP, synergy and integration with planned Industrial Corridors, Dedicated Freight Corridors, National Highway Development Programme, Industrial Clusters and SEZs would be ensured.
What are the suggestions for effective mechanism at state level?
- Set up State Sagarmala Committee to be headed by CM / Minister in Charge of Ports.
- Sagarmala Coordination and Steering Committee (SCSC) shall be constituted under the chairmanship of the Cabinet Secretary and others.
- This Committee will provide coordination between ministries, state governments and agencies connected with implementation and review the progress of implementation of the National Perspective Plan.
How does it ensure the sustainable development in CEZ?
- This would be done by synergising and coordinating with State Governments and line Ministries of Central Government through their existing programmes.
- Such as those related to community and rural development, tribal development and employment generation, fisheries, skill development, tourism promotion etc.
- In order to provide funding for such projects and activities that may be covered by departmental schemes a separate fund by the name ‘Community Development Fund’ would be created.
What’s the role of Institutional Framework ?
- It has to provide for a coordinating role for the Central Government.
- It should provide a platform for central, state governments and local authorities to work in tandem and coordination under the established principles of cooperative federalism.
What’s the role of NSAC?
A National Sagarmala Apex Committee (NSAC) is envisaged for overall policy guidance and high level coordination, and to review various aspects of planning and implementation of the plan and projects.
So, Is it Good to have smart ports on the line of Smart Cities?
Can you answer some questions?
#1. Can you examine the bottlenecks in Indian port infrastructure and list the initiative taken in recent times to address this issue?
#Q.2 Indian port infrastructure can be revamped by Sagarmala project by effective management? critically comment.
Published with inputs from Arun