What will the FM deliver this year?

Geetu Vaid

February is generally the time when all eyes in the real estate sector are fixed on the Union Budget as expectations about a favourable thrust from the government soar high. However, this year the expectation meter is at an all-time high, firstly because this will be the first “full” budget to be presented by the new government , and secondly as the real estate sector is in dire need of reforms and a policy thrust after an extremely dismal show in 2014.

The new government’s honeymoon period is over and all the stakeholders in this sector are eagerly awaiting what the Finance Minister Arun Jaitely has to offer to this sector that contributes 6.5 per cent to the nation’s Gross domestic product (GDP) and employs over 50 million people making it the second biggest employer in the country, after the agriculture sector. “With lots said and positive hopes shown in the first budget by the NDA government, expectations are high of a massively reformist Union Budget that would give the somnolent economy the jolt it badly needs”, says Lalit Kumar Jain, Chairman of CREDAI and CMD of Kumar Urban Development Pvt Ltd.

High interest rates, lack of funds, rising prices of construction materials, overall economic slowdown, rising inflation, reluctant investors and elusive end users have been the main stumbling blocks for the real estate sector over the past three years, and it is high time that some of the key concerns of the sector are addressed in an effective manner. Let’s have a look at the wishlist that realty experts, developers and home buyers have for the Finance Minister this year.

Positive policy move

One of the topmost demands from the stakeholders in this sphere for the past several years has been the industry stauts for the sector. This is one point that is vehemently demanded each year from all quarters but has been overlooked consistently. The grant of industry status is significant for the growth of the sector as this will give developers access to funds at reduced interest rates and diminished insurance thereby making housing more affordable. “Without the industry status, the developers are forced to raise funds at higher borrowing rates, and that too with stringent evaluation process. The whole process delays the construction and increases the final cost of the flats, affecting the end consumer. We expect with a progressive government at the Centre, we can finally get this announcement in this budget”, says Sachin Sandhir, Global Managing Director, Emerging Business and MD, South Asia, RICS.

“The industry status for the complete sector instead of easing the lending only to affordable housing would help greatly to push housing demand in India”, he adds.

Simplification of the tax regime for the sector is another area that developers as well as homebuyers want addressed immediately. At the moment home buyers need to pay service tax, VAT as well as stamp duty when buying residential units. “The government needs to ensure the quick passage of Goods and Service Tax which will help in substituting several taxes and help the consumers”, says Mahipal Singh Raghav, CMD, MMR Group . “The sector should be brought under the ambit of this single tax regime. This will simplify transaction costs (which currently include stamp duty) and give developers a set-off or credit on the taxes paid on construction material and services”, said Om Chaudhry, Founder & CEO, FIRE Capital. “GST is an important tax regime and will benefit the economy going forward. Inclusion of real estate in GST is something that needs a holistic view but we believe its inclusion will bring about a lot of transparency in the sector. Taxes comprise a major portion in a property purchase and it must be rationalised”, added Mohit Goel, CEO, Omaxe Ltd..

The approval of the pending Real Estate Regulatory Bill (RERA) that was deferred once again recently is another issue that experts want to be dealt with immediately. This sector is valued at over $50 billion currently and anticipated to grow to over $200 billion by 2020. There is thus an urgent need for an apex body which will address the concerns and look into issues from this sector.

“RERA must now be implemented so that the Indian real estate market becomes attractive for foreign investors. The upcoming Union Budget should make this vitally required policy a reality and put an end to the suspense”, says Anuj Puri, Chairman & Country Head, JLL India.

Rental housing segment is another ignored area that needs a boost through tax incentives. “The Union Budget needs to provide tax incentives for renting out of residential properties. Currently, rental income is treated as normal taxable income. Providing tax breaks specific to rental income will give a significant boost to rental housing segment in the country, and help increase rental supply in the metros”, adds Puri.

Single-window clearance is another long-pending demand of the real estate players that features in the Budget wishlist again this year. Currently the approval process is very lengthy and takes around one-and-a-half yrs to 2 years for approval. The cost of delay in approval adds further to customers spending by 25 to 40 per cent. Gujarat and Punjab have already implemented a single window clearance system which has given a boost to the sector in these states. Faster project approvals would not only mean timely completion and delivery of projects, but would also bring the prices down. “There should be a single-window clearance system and online clearances in order to remove the human involvement to expedite the projects and eradicate corruption”, says Ajay Kumar, CMD Ace Group.

Incentives for homebuyers

The shortage of urban housing in India is estimated to increase to 3.41 crore units by 2022 due to demand-supply gap and rising levels of income among the working class seeking to purchase houses. A majority of this shortage is in the LIG and EWS housing. Realty players seek tax rebates for all affordable housing projects approved under the affordable housing scheme. “Affordable Housing Policy is the need of the hour and everybody talks about its and none do anything about it. The least the government can do is to implement the recommendations of a task force appointed by government”, says CREDAI head Jain.

“The government also needs to focus in the direction of scraping the service tax for under-construction projects and higher tax exemption limits on repayments for home buyers in affordable housing projects. Providing tax holiday benefits for affordable housing projects will put further impetus on this segment and ease the burden of the home buyers”, adds Kumar Bharat, Director, BCC Infrastructures Pvt. Ltd..

Low home loan rates is what is on each homebuyer’s mind this year. The recent cut in repo rate was a good beginning and the homebuyers and developers are expecting more on this front. “We expect that the interest rate on housing loans should be lowered by 2-2.5% to give a boom to the real estate sector. To turn the Government's vision "Housing For All-2022" into realty, the apartments that are under or of 1000 sq. ft. should be exempted from The Income Tax Act 80I (B) . By doing so, the benefits will be directly transferred to the customers”, says RK Arora, Chairman, Supertech Limited. Rental housing segment is another ignored area that needs a boost through tax incentives. Providing tax breaks specific to rental income will give a significant boost to rental housing segment in the country, and help increase rental supply in the metros”, says Puri.

With expectations running high, the fate of the real estate sector hinges on what the FM has in store for this sector.

Make the business viable

Besides the easy approval system, lowering of lending rates and regulating the cost of construction material are on the developers’ wishlist for this year. A steep rise in the cost of construction raw materials hasstalled several projects. The cost of cement has increased by over 25 per cent and prices of a few other materials have doubled over the past few years. “The government must regulate prices for at least key raw materials like cement, iron, concrete, etc. by putting upper limits on their prices”, says Ashok Gupta, CMD, Ajnara India Ltd. “As India is gearing up for Make in India, the challenge greatly lies on the manufacturing industry. Over the next few de these materials so as to curtail rising property prices".