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'Still Waiting For Grant Of Industry Status'

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Tata Housing CEO and MD Brotin Banerjee writes about the expectations of the real estate sector from the Union Budget 2013-14

Fiscal policy
Given that residential property prices have been rising steadily across cities, demand for real estate has slumped. The real estate sector was expecting a cut in interest rates in both Q2 and Q3 (2012-13), but the RBI has kept the repo rate (short-term lending rate) unchanged since April 2012. Falling demand for housing from consumers, coupled with tight monetary measures has led to liquidity crunch for developers. In order to provide a fillip to developers and consumers, it will be necessary to bring about monetary policy changes by bringing down the repo rate and easing credit policy.

Mandated bank support for project development is required to ensure timely completion of projects. Tax measures such as increasing the limit of interest deduction on home loans from Rs 1.5 lakh to Rs 3 lakh will provide necessary motivation to consumers to increase buying activity and revive demand. Raising the income tax exemption limit to Rs 3 lakh will lead to more disposable income available for domestic investments.

Increase in service tax and excise duty by 2 per cent in the last budget has put pressure on project costs raising the unit costs by 4 per cent-5 per cent. As a result, high cost of construction has impacted demand and is proving to be a deterrent for both sides. To revive demand and control rising property prices, government should consider lowering of service tax and excise duty. In addition, residential construction should be taken out of service tax net to cover builders and developers who are registered and paying service tax under the ‘works contract service’.

Regulatory Reforms

It has been a long-standing demand of the real estate sector to be granted ‘Industry Status’. This will help the sector become better-organised and increase accountability. It will also help the sector access bank lending at average interest rates with low collateral as against high risk rates offered at present for construction projects. Easier financing options will help bring down home prices which will be hugely beneficial to consumers and help address the urban housing shortage in the country.

Another recommendation would be the establishment of a single-window clearance for construction projects to ensure timely completion and avoid cost overruns. Construction costs are affected by multiple levels of approvals and uncertain time required for clearances. As a result, both consumers and developers bear the brunt, with developers unable to complete projects on time and delayed possession for consumers waiting.

Affordable Housing

Affordable housing will continue to have priority as the urban housing shortage is estimated at 18.78 million households in 2012 in the EWS and LIG segment.  Union Budget 2013-14 should provide SOPs and tax rebates for affordable housing projects along with interest subvention of 5 per cent for the LIG and EWS category.  Extension of scheme of interest subvention of 1 per cent on housing loan up to Rs 15 lakh on homes costing up to Rs 25 lakh should be continued. Excise duty reduction on cement and steel to lower project costs and expansion of the interest subsidy on loans will prove to be necessary tools to boost developers’ interest in the affordable housing segment. 

The announcement of allowing ECB for affordable housing projects was a welcome move. The revised criteria will ease the financial crunch of the industry and make funding more accessible for developers and Housing Finance Companies (HFCs). The inclusion of slum rehabilitation projects will address the need for better urban planning in our sprawling cities.

The government should also consider conferring infrastructure status to such projects. This will enable developers to access priority bank loans at lower interest rates mandated for infrastructure projects.


 


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