Will Real State Premiums get snipped? The Government holds the scissors

Housing Society Law

Posted by Aditya Pratap Law Offices on 01 Mar 24

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Dependency of Real Estate in Indian Economy

The Indian economy is heavily dependent on the real estate sector, and any downturn in this industry may have repercussions for other industries as well. Recognizing this, the government is acting to revitalize the industry. The suggested policies are intended to boost the real estate market and offer help to homebuyers.

The decrease in premiums is anticipated to facilitate developers in creating reasonably priced homes, hence augmenting the housing demand. Both the construction business and the real estate sector will benefit from this. It will also be simpler for consumers to purchase houses because of the decrease in down payment and agent costs, particularly in non-core regions of big cities.

On the other hand, a few specialists doubt these actions’ efficacy. They contend that decreasing down payments and premiums might not be sufficient to boost the real estate industry. They draw attention to the structural problems the industry is dealing with, including excessive inventories, weak demand, and a shortage of reasonably priced housing. If the industry is to be revitalized, these problems must be solved.

Issues that the real estate industry is facing:

• Exorbitant fees assessed by authorities for real estate development

Exorbitant fees for real estate developments that are imposed by authorities pertain to various categories of fees. Real estate agents receive a commission that can range from 5 to 6% of the sale price of a property. This is one kind of fee. But in the end, real estate agent fees and expenses for buyers and sellers of homes may go down as a result of a recent court decision against the National Association of Realtors and several sizable brokerages.

• Lots of inventory and little demand

High inventories and low demand are the result of developer payments to local governments to allow a project to move forward. While local government representatives contend that these levies are necessary for growth, developers lament that exorbitant levies are hindering economic progress.

• A shortage of reasonably priced housing

Real estate projects may involve different types of fees charged by sponsors, such as development fees and asset management fees. The high fees charged for real estate developments can contribute to a shortage of reasonably priced housing, while a surplus of inventory and little demand can also be a factor.

The Effect of a Premium Cut

A decrease in the real estate premium could have several market effects:

• Enhanced Affordability

Lowering the premium makes housing more affordable for first-time buyers and low-income families, allowing them to enter the market and potentially stimulating demand.

• Price reductions

As demand falls as a result of lower premiums, home prices may fall, making it easier for buyers to find affordable properties.

• Impact on Investors

Investors who have benefited from the current premium structure may face difficulties as the market adjusts to the new reality. They may need to revise their strategies or look into alternative investment opportunities.

• Government Revenue

A lower premium may result in a decrease in government revenue because the government will receive less money from property sales. To compensate for the revenue loss, policymakers may seek alternative sources of income or enact new regulations.

Factors Contributing to the Premium Cut

Several factors have influenced the government’s consideration of a premium reduction:

• High Real Estate Prices:

Policymakers have been concerned about the rising cost of housing, which has priced many families out of the market. A reduction in premiums could help make housing more accessible and affordable.

• Investor Speculation:

Investor speculation has influenced the real estate market, resulting in inflated property prices. A lower premium may deter speculation and encourage more responsible investing.

• Government Intervention:

Historically, the government has intervened in the housing market to address affordability issues and encourage homeownership. A premium reduction could be viewed as a way to support these objectives and assist families in achieving the American dream of homeownership.

Conclusion

A potential premium reduction in the real estate market could have serious consequences for buyers, sellers, and investors. While lowering the premium may make housing more affordable and accessible, it may also change investor behavior and government revenue streams. Policymakers should carefully consider these factors when deciding whether to implement a premium cut, as the effects on the housing market and the broader economy could be long-lasting.

Aditya Pratap is a lawyer and founder of Aditya Pratap Law Offices. He practices in the realm of real estate, corporate, and criminal law. His website is adityapratap.in and his media interviews can be accessed at http://www.youtube.com/@AdityaPratap/featured. Views expressed are personal.

This article has been assisted by Himanshi Chandani, a 4th year law student pursuing B.A.LL.B. from Lloyd Law College, Greater Noida.