Budget Announcements May Boost Housing Sector
Tax incentives, lower interest rates for affordable housing, tax benefits for 2nd house, subsuming of stamp duty in GST are among a slew of measures that may be announced on July 5
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With the full Budget just 10-days away, the real estate industry is upbeat about a slew of measures it expects the Union Finance Minister Nirmala Sitharaman to announce that will boost the overall sentiments of the housing sector. Overall, the housing sector, which has seen piling up of unsold inventory, half-finished residential projects among other issues hopes that the budget addresses two of the long-standing demands of the real estate developer community, namely: single-window clearance and industry status for the entire real estate sector. These steps will greatly reduce the project timelines for developers and help them procure funds at a much better rate. "In the long-run it will help reduce the input cost of construction involved, thereby making the final product viable for the end consumers," says the head of a large real estate company.
Government insiders say the Central Government is actively considering announcing a slew of measures that will boost the housing sector in the upcoming July 5 Budget. The steps under consideration include a bigger tax benefit to encourage purchases, softer interest rates for affordable housing and restoring some benefits for a second house. Offering higher tax incentives or steps to boost the affordable housing sector are actively under discussion, says a senior government official.
Why is the real estate sector so important today? It is because the real estate is a highly labour intensive sector with huge employment generation of nearly 14 per cent of the total employment. It is one major sector contributing towards the country’s GDP growth of nearly 7 per cent, beyond providing a basic shelter above the roof to all its citizens, explains Dr Niranjan Hiranandani – President - NAREDCO, country's apex body of real estate developer that works closely with the Central Government on policy, regulatory and taxation issues impacting the realty sector.
Hiranandani says the industry expectation lies ahead in rationalization of taxes by subsuming stamp duty in the GST, extending Input Tax Credit to the commercial segment, reducing corporate tax, abolishing of MAT to provide thrust to SEZ developments among others. "Another most imperative expectation is to frame National Rental Housing Policy in order to meet the target of Housing for all by," he adds.
Shishir Baijal, Chairman and Managing Director at Knight Frank India is hoping for ‘Industry status’ to real estate sector, deduction on the principal repayment of housing loans (Section 80C), and a push to "Rental housing" among other pressing demands. "At present, Section 80 C of the Income Tax Act does not provide for a focussed benefit on housing.Tax payers have numerous investment alternatives to choose from and the lack of tax benefit on the principal amount of home loans makes them put their home purchase decisions on hold, thus impacting sales. A separate annual deduction of INR 150,000 for principal repayment will provide the much needed fillip to opt for home loans and inadvertently push real estate sales," says Baijal.
There is significant expectation to cut GST rates to a single, standard rate, and not have multiple rates or taxes. The abolition of stamp duty or its incorporation under GST will be an added advantage. Relaxation in income tax slabs will also be welcomed as it will allow salaried class to make further investments in real estate. "The government must look at increasing the deduction limit under section 80C from the current Rs 1.5 lakh. The need of the hour is to lower interest rates which will help resolve the existing liquidity crisis and boost housing demand," says Surendra Hiranandani, Founder & Director, House of Hiranandani.
The upcoming budget should contemplate the introduction of housing bonds for the developer; provide low-interest rate construction funds, at least for affordable housing projects, for middle and economic class, says anothe developer. "Special status should be granted to HFCs to bring them at par with the banking sector for their sustained viability in the market to invest in the sector. They should be allowed to raise funds so that they can offer incentives in the form of lower interest rate to the borrowers,” says Avneesh Sood, Director EROS Group.
Overall, there are many positives anticipated for the Infrastructure Sector; the introduction of Tax-Free Bonds to boost investment, streamlining of land acquisition process and increase capital outlay towards Infrastructure Sector by 12-18 percent, to name a few. It should be noted that the Prime Minister’s Mission of Housing for All by 2022 will enter its significant second phase, which is bound to be an extremely exciting time for all Industry stakeholders, says another builder. The low-interest rate loans, special interest rate for Women, Tax exemptions with specific investments, Rollover Capital Gains, Capital outlay under PMAY and other such schemes will support the Infrastructure growth. However building of such large number of housing, much of which is based on tenders should ensure houses and their related fixtures such as fittings, Elevators and Building material is of high quality with high longevity and safety factors. The Budget is also expected to provide direction on the long-term projects being undertaken under Smart Cities Mission, and Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programme. To continue the momentum for Indian Realty and Project the next wave of the Economic Growth, government should allow tax benefits for investments in Real Estate Investment Trusts (REITs).
Says Amit Gossain, MD, KONE India and Chairman, Real Estate & Building Technology, CII: "The Union Budget 2019 is expected to be pro-growth and forward-looking as Infrastructure Sector has been identified as the backbone of Nation’s Development and Quality of life by the Government. It is likely to stimulate demand and boost economic growth, on the back of rising urbanization and increasing number of high-rise residential and commercial buildings across the country."
Madhusudhan G, Chairman and MD, Sumadhura Group hopes to see some concrete steps announced in the Budget that will help ease the liquidity crisis currently challenging the realty sector. "As the Industry is facing severe liquidity issues, quick steps should be undertaken by the government to ramp up adequate liquidity into the system," he says. "Subsuming of stamp duty in GST is another major demand of developers. It is important that government includes stamp duty in the GST purview to boost the demand for housing," adds Madhusudhan.