Finance Minister Arun Jaitley will present the Union Budget 2019-20 on February 1. This year, real estate fraternity seeks the reduction in the Goods and Service Tax rate from 12% to 5-8%.
From the surgical strike against black money to RERA to GST; the present government has done a lot for the Indian realty sector. However, despite several radical reforms, the real estate sector has been facing challenges for quite some time now. The cash crunch in the sector owing to reduced sales and liquidity has been a key concern area.
RoofandFloor spoke to some industry stalwarts on their expectations from this year’s Union Budget. Here’s what they feel would make a huge difference.
“Indian real estate accounts for 6% of the GDP employing close to 18% of the workforce and supporting over 350 industries. The recent NBFC crisis delivered a major blow to this sector significantly paring its access to funds. Thus, the government needs to take aggressive measures, albeit temporary, to mitigate stress for the next fiscal,” said Khushru Jijina, MD of Piramal Capital & Housing Finance.
One of the most critical demands is to reduce the Goods and Services Tax (GST) rate.
In GST council meeting held on Jan 10, 2019, there was no decision on GST rate cut, and it has been postponed for the next meeting. “To rationalise GST rate on under-construction properties, it should be brought down from 18% to 12% slab. This will bring down the effective GST rate to 6% and, after Input Tax Credit (ITC), it will become tax neutral for the consumers,” explained Parveen Jain, CMD, Tulip Infratech.
A reduction in GST for under-construction properties will spur demand for new projects. For developers, the input tax credit will help reduce construction costs, thereby preventing delays and substantially reducing property costs.
Sharing another perspective, Rakesh Reddy, Director of Aparna Constructions & Estates Pvt. Ltd. said, “GST also imposes an additional cost burden on developers. Currently, real estate comes under the 18% GST bracket with 33% abatement for land purchase. In metros, however, the land purchase can be more than 50% of the project cost. The government should recognise this disparity and accordingly increase the abatement for land to 50%.”
Stamp duty continues to remain in force even after implementation of GST and the rates vary from state to state, further increasing the overall cost of the property. Many developers also hope that state governments abolish the stamp duty or merge it with the existing GST rate.
Industry status is something which is long overdue to the sector. And this is despite being one of the vital GDP contributors and the fourth-largest employment. This being the last Budget of the ruling government, the hopes are high for the industry status.
“Infrastructure status will ensure easier access to institutional credit and help in reducing the cost of borrowing for affordable projects. It will further reduce the approval processes and increase transparency in the sector,” said Amit Ruparel, Managing Director, Ruparel Realty.
Real estate is inherently a high-risk sector due to the length of time for project completion and uncertainty regarding project approvals. Approvals can take up to a year or more, which cause project delays and directly impact the rate of return. This is further compounded with the high cost of capital.
With the implementation of RERA, the resulting transparency has forced developers and approval authorities to maintain high levels of compliance and efficiency. “This Union Budget should further cement this streamlined process and implement single window clearance. This will ensure project approvals to be processed more quickly, resulting in faster time to market and more certainty,” added Rakesh.
As of today, the first REIT is yet to be listed in India. REITs have the potential to enhance the supply of commercial real estate, which provides the foundation for a thriving employment ecosystem. This invariably leads to a growing residential real estate market.
However, “To make REITs more attractive to investors, the long-term capital gains holding period for REIT units should be reduced to one year, which is at par with equity investments,” added Rakesh.
From homebuyers’ perspective, the key demand is to reduce the interest rate on home loans, with better tax rebates on loan repayments. The deduction applicable on interest paid for home loans can be increased for self-occupied houses. “Income tax deduction limit on interest paid should be hiked to Rs 5 lakhs especially in Tier 1 cities. Similarly, IT deduction allowed on principal paid should be increased,” said Khushru.
Additional income tax deductions can be offered to those who are buying properties within the affordable housing segment. This will provide crucial support to this segment as affordability is a substantial constraint on demand.
Further, income tax deduction on principal and interest on a second home loan should be reintroduced. Ashish R Puravankara, MD of Puravankara Ltd believes that “there should be no cap for loss from house property: The limit set-off for loss from house property of Rs 2 Lakh should be removed.”
Lastly, the sector will also benefit from revised income tax slabs that reduce overall tax expenditure. This will enhance the ability of the salaried class to invest in real estate.