On the eve of the Union Budget,expectations are running high. Stakeholders within the real estate sector are hoping that the Finance Minister will grant fiscal concessions and announce provisions that will pull it out of its current low-demand phase. Industry bodies like the Confederation of Real Estate Developers Association of India (Credai) have already submitted their recommendations to the Finance Ministry.
FILLIP TO LOW-COST HOUSING
High on the wish list of the sector is that the government should provide impetus to affordable housing. Says Santosh Rungta,president of Credai: We are optimistic that the central government will put affordable housing at the centre of public policy.
Most developers would like to see the government initiate measures that will revive demand. Raising the income-tax deduction on interest and principal repayment,according to them,would be one way of achieving this goal. The government needs to increase the deduction on interest repayment on home loans from Rs 1.5 lakh to Rs 3 lakh. Similarly,deduction on principal repayment should be increased from Rs 1 lakh to Rs 2 lakh, says Navin M Raheja of Raheja Developers.
Raheja further adds that Section 80-I-B should be restored under which developers received income-tax benefits on profits derived from residential housing below a stipulated size. Service tax on rentals should also be done away with since it leads to double taxation (corporate tax plus service tax) and discourages investment in the sector, he says.
Stressing that the budget must deliver real value in a changing world,Anuj Puri,chairman of Jones Lang LaSalle Meghraj,says that this has been a year of extremes for the sector. Over the past four to five months,demand for property sank to its lowest point in many years. However,after the election results were announced and a stable government came to power,there was an immediate revival in demand. The government is already on the right track by considering the hiking of income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a year. However,there are still a number of blanks to be filled,and we hope that the forthcoming Budget will address those blanks proactively, he says.
In order to tackle the shortage of urban housing,new satellite townships need to come up around major cities. However,such townships can only come up when transportation linkages and basic infrastructure are available. Says Puri: There is a need to establish transport linkages and provide the necessary infrastructure that will enable these new satellite townships to grow and help tackle the current demand-supply mismatch.
With the investment climate once again turning favourable,the Budget also needs to address the long-pending issue of real estate mutual funds (REMFs). Not just institutional investors but retail investors too will then be able to invest in the real estate sector within an organised framework and with even a small capital. Further,nothing could be more welcome than a Budget that finally and decisively enables the entry of foreign direct investment (FDI) into the real estate sector, says Tanuja Rai Pradhan,national head – research & business analytics group,Cushman & Wakefield India.
The sector is also looking forward to some tax relief. The rental income yielded by commercial premises should be freed from service tax. The tax holiday under Section 80-IA (4) (iii) for developers who build,operate and maintain industrial parks should be extended. This will provide a shot in the arm to the beleaguered IT industry, says Raheja.
With the sector viewing affordable housing as the mantra that will bring about its revival,developers are requesting sops that encourage such housing. We request for the reintroduction of tax exemption to developers who construct smaller-sized flats. The budget should offer incentives to developers to concentrate more on affordable housing. Stamp duty and registration charges for land should be rationalised so that obtaining land for affordable housing becomes more feasible for developers, adds Raheja.
Raheja says that the private sector should be encouraged through fiscal concessions to invest in the provision of power,water,sanitation,waste management and other infrastructure. Some of the steps that could encourage the flow of private sector funds towards the development of infrastructure are increasing FSI norms,tax exemption on steel and cement,tax benefits during construction phase,provision of land,and so on.
Another item that is high on the wish list of the real estate sector is that its long-awaited demand for being granted industry status be met. Once the sector gets industry status,it will be able to avail of more concessions,goes the belief. Says Puri: The Indian real estate sector once again petitions to be granted industry status. There is no doubt that it is indeed an industry for all practical purposes. That the health of a nations real estate sector is often seen as indicative of its overall economic health should be taken into consideration while this point is being decided.
An announcement from the government regarding the setting up of a real estate regulator would also have a salutary impact. Since India has now emerged as a prime candidate for attracting overseas investment,a higher level of transparency has become imperative. This regulator may not necessarily decide on pricing,but it could lay down firm principles regarding property dealings,and also the quality parameters for rating of constructions, says Puri.
TACKLING URBAN HOUSING SHORTAGE
Data shows that the real estate sector alone could add 1-1.5 per cent to the nations gross domestic product (GDP) if efforts are made to reduce the shortage in urban housing. Credai has recommended that fiscal incentives should be offered to encourage affordable mass housing in the 300-600 sq ft and up to 1,000 sq ft segment. Demand in this segment could be stimulated by offering subsidy on the interest payable by buyers, says Rungta. The Eleventh Five Year Plan has estimated an urban housing shortage of 24.7 million units,almost all of which is in the economically weaker section (EWS) and the lower income group (LIG) category. Such interest rate subventions have been under consideration of the government for some time. Such measures would encourage home ownership which is critical not just for economic reasons,but also from the social perspective,as it is known to create stability,improve the law and order situation,and lead to better education and hence employment prospects.
Credai has also advocated the exemption of direct and indirect taxes to boost slum redevelopment. This recommendation is crucial in the light of the governments own resolve to make urban India slum-free in five years. About 80 million of Indias urban poor live in sub-standard and unsafe housing conditions where they are under the constant threat of displacement.
Credai also wants 100 per cent interest deduction on home loans taken by senior citizens or by their children if they opt to buy a second home in the joint name of parents who are above 55 years old. It has also requested for exemption of capital gains for senior citizens or their children on the sale of these residential units.
When the Budget is presented on Monday,hopefully some of these proposals will see the light of the day. The real estate sector badly needs the Finance Minister to play Santa Claus early this year.