ON REAL ESTATE SECTOR
The introduction of the Real Estate Regulatory Act as well as demonetization last year has been extremely disruptive for the real estate sector. The government has already expressed its vision of housing for all by 2022. If this is to become a reality, they will need to provide tremendous amount of stimulus for the real estate sector so that homes become more affordable and get produced much faster to meet the objectives. Steps that can be taken by the government include:
Rohit Gera,Managing Director,Gera Developments and VP, CREDAI
Widen the scope of the tax free status for projects which currently require 90% of the project potential to be developed within 3 years. This is a tremendous deterrent for large-scale projects as it is virtually impossible to complete these projects within 3 years.
To encourage the supply of rental housing and increase the standard deduction available for rental income.
To encourage people to acquire the existing inventory available in the market, allow for an increased deduction of an extra 100% of the interest payment made by the flat purchases to the financial institutions for a 5 year period. This will drive down the effective rate of interest for the flat purchasers. The ensuing increase in real estate activity generating income to the government from other sources, will more than compensate for the reduction in income on account of the increased deduction. In addition I do hope that the government takes steps in the budget to curb the regeneration of Black Money in the economy. A simple measure for this could be limiting total cash payments to say 1% of the total expenses of a company in each month. This will force all payments for all businesses to be made by cheque.
AR. RICKY DOSHI,Founder & CEO, ARD Studio
With the country recently witnessing the demonetization act, there are a number of speculations doing the rounds regarding the upcoming budget. Currently people are facing a lot of challenges due to the demonetization policy, but, the future seems positive for the construction industry. The RBI has already announced cuts on interest rates, which is a positive sign for the buyers. They can now get home loans at a cheaper rate than before. All the major banks have announced the revised interest rates for home loans. With banks being more cash rich, there can be more news on the rate cuts that may be announced during the budget. Additionally, there are more policies expected in the near future that will further ease out the entire business of construction industry. There will be more transparency, imposing regulatory measure due to the RERA act that was passed last year. The budget may also include policies regarding low cost housing schemes which would boost the residential construction industry. Policies of infrastructure development will directly impact the construction industry as well, thereby making it an important feature in the upcoming budget.
Anuj Puri, Chairman & Country Head, JLL India
Clarify beneficiaries under Pradhan Mantri Awas Yojana
The government recently announced that interest rates of 3% would be applicable on loans of up to INR 12 lakh and 4% on loans of up to INR 9 lakh, under the Pradhan Mantri Awas Yojana (PMAY). Now that two new income categories can avail higher loans with interest subsidies, we expect some more clarity on actual definition of beneficiaries who can avail of these benefits. For example - would young urban professionals hoping to buy their own apartments but not belonging to either the EWS (Economically Weaker Section) or
the LIG (Low Income Group) segments be allowed similar subventions? Also, affordable housing is largely available in the fringe
areas of metros and tier-II, III cities. Would certain redevelopment projects within the metropolitan city limits – and meeting the affordable housing definition – be granted similar benefits?
Bigger income tax incentive for first-time home buyers
First-time home buyers were given additional INR 50,000 tax exemption in the last Budget for a house worth upto INR 50 lakh with a loan of upto INR 35 lakh. This announcement mostly benefited end-users in tier-II, III cities but not as many in the bigger metros where housing is largely above this specific limit. Can the upcoming Budget bring in similar tax exemption for first timers in the metros too? A higher limit specific only to the bigger metros can be introduced.
Also, can middle class youth buying their first house in an affordable project get additional income tax incentives for at least five years? Given the lack of institutionalized rental housing in Indian cities, such a move could spur many fence-sitters into moving out from their rented apartments into owned houses. It could also make developers come up with products suiting this segment.
In the previous Budget, no financial protection was offered to end users against project delays. This Budget can extend tax rebates in cases where projects get delayed due to bona fide reasons. All these efforts can help the government move closer to its dream of ‘Housing for All by 2022’.
Provide higher tax saving on housing loan and house insurance premiums
The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of INR 2 lakh is insignificant given the ticket sizes in cities, especially in bigger metros like Mumbai, where an overwhelming majority of the available housing is priced at, or above, INR 1 crore.
The tax exemption limit should be auto-set to match inflationary trends in a financial year. Also, tax concessions on house insurance premiums could be introduced to encourage end users to insure their homes.
Provide clarity on GST
While the GST (goods and services tax) structure was announced last year, the real estate industry is waiting with bated breath to see which tax rate is applied to the real estate and construction industry. What would happen to the abatement scheme allowed under the service tax regime? Currently, developers and home buyers can obtain service tax benefits under the abatement scheme.
In case of an under-construction flat purchase, an abatement of 75% is allowed, subject to the flat being less than 2,000 sq ft and sold for less than INR 1 crore, taking the effective tax rate from 15% to 3.75%. If the two conditions are not met, the abatement is reduced to 70% and the effective tax rate to be borne by the home buyer increased to 4.5%.
If, however, abatement rules do not apply under the GST regime, the applicable tax rate would shoot up drastically. Moreover, developers would have already paid service tax and VAT for procurement of goods and services for their properties currently under construction. Will they be allowed to claim credits for input tax paid? Clarification would also be needed on whether credit for input tax would be allowed if the composition scheme has been availed by developers.
Ease tax reporting and tax slabs
With its maximum governance mantra, the government can look at easing the tax reporting structures. Also, the benefits of demonetisation exercise should be passed on to the common man through easing of tax slabs and offering a higher degree of rebate. With the earlier stated intention of reducing corporate tax as well, the idea is to widen the tax net while simultaneously reducing actual tax incidence.
Raise house rent deduction limit
Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a substantial deduction in cases where the salary and its HRA component are higher. However, a salaried person without any HRA component or a self-employed person or those who draw lump sum pays without an HRA component can only claim a maximum deduction of INR 5,000 a month under Section 80GG. The Finance Minister can make this limit more realistic and bring it in sync with today’s housing rents.
SRINIVASAN GOPALAN, Group CEO,Ozone Group
Housing for all by 2022 is a very ambitious goal. To enable us to move in that direction, Prime Minister Shri Narendra Modi as already announced sops for Affordable housing segments covering EWS and LIG. We could hope for good news for the mid-segment housing customers in urban markets too, in the upcoming budget. This could come in the form of raising the income tax deduction limit from the present Rs 2 lakhs, cheaper interest rates (below 8%), special sops for women home buyers and reduction in income tax. We could also expect appointment of local committees for a single window project clearance, which will drastically reduce the time and effort required for launching new projects. We could also be sure that the industry will greatly benefit and increase customer confidence, with the implementation of RERA and GST. All in all, I expect the very best times for Real Estate industry and customers looking to buy homes.
MUDHIT GUPTA CMD, EMGEE Group Pradhan Mantri Awas Yojana (PMAY),
We are looking forward to the Union Budget to have some interesting incentives for the low cost housing segment. We expect the government to look into the taxation slabs for personal and corporate sector, stamp duty and introduce some benefits for the primary house buyers in the affordable housing segment.
We propose that the tax free slab to be raised from current level to about 5 lacs and a tax rate cut for personal and corporate taxes. The demonetization process has brought surplus capital into the system which will help increase cash flow into the PSU banks. The stamp duty charges should be reduced down to 2% from the current 5% to encourage more frequent transactions leading to higher revenue growth. We also hope the stamp duty should also be waived off for affordable housing in the Pradhan Mantri Awas Yojana (PMAY), housing for all. We are looking forward to some strategic policy changes which will accentuate the growth of the real state sector and the overall economy of the country in the next fiscal.