What Realty Sector Is Expecting From Budget

Like many other constituents of our economy, even the real estate sector anxiously awaits the upcoming interim annual budget with lot of faith and hope. Last few years have been rather rough for real estate industry, with inventory pile up, sluggish sales, regulatory bumps, rising taxes, credit squeeze, and it all. Both homebuyers and developers are hoping that the interim Budget would help turnaround their fortunes with some sops and incentives.

The industry is hoping that its concerns relating to rationalization of taxes and infusion of liquidity in the markets shall be duly addressed by the Government, particularly since slowdown in demand across segments has hugely impacted the real estate sector.  As a growing economy India needs to ensure continuous growth of its infrastructure across the country, which includes real estate in all segments. Today India needs around $800 billion of investments for developing its infrastructure over next ten years.

The reduction in tax rate would help millions of home buyers and the real estate industry. It will also benefit the entire value chain dependent on construction sector, which is a major contributor of India’s infrastructural growth and the 2nd largest contributor to GDP.  It is therefore absolutely imperative to ensure growth in the real estate sector to create and sustain inclusive economic growth.

Pre-budget recommendations of the Real Estate Industry from the upcoming Interim Budget include:

Need for forward looking polices to promoting Real Estate Sector

The initiative to fill in the gap of urban India’s housing shortage is expected to boost investments to a whopping $1.3 trillion, for the housing sector. However, we need stable and forward looking policies and interventions that will help the real estate and the economy to move forward. We expect the government to address the industry’s concerns on funding by easing external commercial borrowings, real estate investments and reforms and new set of rules for RERA, which will help the sector stabilise and grow. 

Streamlining opportunities for real estate sector for smart cities

With increased urbanization, increasing affordability and availability of cheap finance and regulatory support, housing for all will fast become a reality. Cities and towns that are getting clogged due to lack of space and rising population will witness further rise in vertical growth. Smart Cities of the 100 cities mandated for the upgrade under the Smart Cities Mission, of which 99 have been selected so far. The programme would involve a capital outlay of Rs 2.04 lakh crore and till now projects worth Rs 2,350 crore have been completed and works of Rs 20,852 crore is under progress.

Rationalization of GST, Stamp Duty, Incentivise rental housing

There is a need to bring stamp duty within the purview of GST and provide Input Credit of construction against output of renting. Besides there must be incentive for rental housing to meet Housing for All commitment by 2022 and increase limit of interest deduction, paid on home loan, from Rs 2 lakh to 3 lakh.

After GST implementation, GST on under construction properties is fixed at 18 percent, with one- third abatement for land, which finally works out to 12 percent on the sale value. Abatement for land in Service Tax regime, before GST, was 70-75 percent of the property value, including service tax and land cost was imposed only on 30-35 percent of property value.

Creating stressed asset fund for incomplete projects 

Buyers are hoping that the government would also take look at creating stressed asset fund to deal with the issue of incomplete projects and provide an EMI holiday to those whose houses have been facing undue delays.

Rationalizing of Income Tax

The government must increase the income tax deduction limit for individuals on interest payment against loans taken for construction or acquisition of self-occupied property. The need for Tax Deducted at Source (TDS) by the buyer on transfer of property must also be removed or the limit for applicability of TDS must be increased from Rs. 50 lakh to Rs. one crore. Besides TDS on payment on transfer of immovable property under Section 194-IA should be removed. 

Need for rationalisation of provisions concerning transaction in immovable property

We would request the government that different rates of variation must be provided for metro and non-metro cities (for example we can have 10 per cent or higher for metro cities and 5 per cent for non-metro cities).

Eliminate restriction on set-off of loss from house properties

The new amendment in the Finance Act, 2017 Act provides that loss from house property up to Rs. 2 lakh only will be set-off against the income under other heads in the same fiscal year. In such case, any loss above Rs. 2 lakh is eligible for carrying forward for eight years and can be set-off against income from house property only. Such provisions are against the government’s intention to incentivise housing sector and promote investments in real estate sector. Such provisions must be removed as it acts as a dampener and lowers investments in the housing sector.