MUMBAI: Given the policy reforms undertaken by the government in 2016, we are hopeful that the upcoming budget will provide much needed stimulus to the real estate sector. We expect the budget to give thrust on investment in infrastructure, relax income tax slabs, provide clarity on GST, increase House Rent Allowance (HRA) deduction and announce measures that will uplift the real estate industry.
Clarity on taxes
We hope to get clarity on the final rate of GST that will be applied to the real estate sector. A 12% slab is preferred by the sector as it will reduce the cost of apartments and increase affordability for end users. Developers too stand to gain as this would positively impact sales in the market. A higher rate of 18% is expected to increase the cost of homes, especially in under construction projects, unless there is clarity provided on the composition scheme (abetment of cost of land), VAT charges if they have been paid by developers for under construction properties).
Corporate taxes which are 55% including DDT are among the highest in the world which is impeding investments into large scale manufacturing in India. It is more profitable today to trade in shares than to invest in creating a business. Entrepreneurs are presently being penalised while trading is encouraged.
The presence of multiple taxes have also acted a stumbling block due to which there has been no REIT listing. The government must look in to it as REIT’s can certainly provide the much needed boost to the sector.
Single window clearance
A major impediment to real estate development in India remains the approval process. While the government has done a lot to ease the functioning of the real estate sector and protect the consumers, it must get the statutory authorities responsible for clearing the projects within the purview of law. Administrative reforms should be made to facilitate quicker approval process which will help developers complete and handover projects on time. This will infuse confidence in home buyers and make it attractive to global institutional investors as well thereby providing a huge opportunity for the sector to grow and mature keeping customers as priority.
Higher tax-saving on housing loans
We hope the government raises HRA deduction and provides tax incentives for first time home buyers. The current limit of Rs. 2 lakh is insignificant, given the rates prevailing in metro cities. Similarly, tax concessions on house insurance premiums can be introduced to encourage end users to insure their homes.
Granting ‘industry status’ to the real estate sector
Getting industry status has also been a long pending demand of the real estate sector. This would pave way for cheaper financial options for real estate developers. In its absence, developers are forced to borrow at high interest rates and comply with a stringent evaluation process. Currently most industry rules are applicable to the sector, but denial of industry status for funding will only worsen the slowdown in demand because of erosion of capital.
Thrust on investment in infrastructure
The government must allocate an amount exclusively for developing infrastructure and improving connectivity in the peripheral areas of cities, especially the metros. We expect this year’s budget to focus upon improving infrastructure in the country in order to bring smaller regions into the limelight. This in return will allow the conversion of rural to urban regions, thereby promoting smaller cities to gain real estate momentum and increase job opportunities.
NOTE: The author, Surendra Hiranandani, is the chairman and managing director of the Hiranandani Group.