With the real estate sector facing a liquidity crunch and multiple taxes adding to the burden on home buyers amidst a slowing economy, we look at the expectations of the real estate fraternity, from the first budget of Modi Sarkar 2.0
1. The solution to funding issues
The real estate sector has been facing a significant funding crunch, which was aggravated by the distress in the NBFC (non-banking financial company) sector. “The realty sector is expecting the government to ease ECB (External Commercial Borrowing) norms, to ensure a steady inflow of capital from foreign investors. Similarly, the introduction of housing bonds, granting of special status to HFCs (housing finance companies), at par with the banking sector, will further help in providing the much-needed fillip to the housing segment, across all markets and geographies. For ambitious government welfare schemes, such as the ‘Housing for All’ initiative to be a reality, such reforms are prerequisites,” asserts Anshuman Magazine, chairman and CEO – India, Southeast Asia, Middle-East and Africa, CBRE.
2. Support for affordable housing
While the government has taken several initiatives to boost affordable housing in the country, experts maintain that there is room for more steps. According to Nimish Gupta, MD south Asia, RICS, investments in infrastructure development are likely to have a substantial share. This should help in increasing developers’ access to funds, for the development of affordable housing projects, in addition to initiating rental housing, he adds. “Highest levels of compliances and adoption of business best practices will, therefore, need to overlap with advancements in technology and delivery mechanisms, for the affordable housing scheme,” says Gupta.
3. Tax rationalization
The real estate sector is also expecting further relaxation in the GST rates. Recommendations, to cut the corporate tax and extend the SEZ program, have also been put forth. There is fear that if the tax incentive for SEZs is withdrawn, it could severely hit the job creation ability of the sector. Praveen Dhabhai, COO, Payworld, points out, “We expect Modi 2.0 to think towards the reduction in GST, for remittances where the margin is wafer thin. The current GST rate is levying a huge burden on the end consumers.”
4. Cross purchasing of residential and commercial properties, from sales proceeds
At present, there are restrictions on tax benefits, if the seller of a residential property uses the sales proceeds, for buying a commercial property, or vice-versa. Analysts are hoping that the government will take the initiative, to allow the use of sale proceeds of residential property to purchase commercial property and vice-versa.
5. Infrastructure development
The union budget should focus on a holistic plan for infrastructure and housing development, in the peripheral locations and tier-2 and tier-3 cities, says Magazine. A boost for infrastructure, will not only benefit the realty sector but also help other industries and create large scale employment in the economy. “For the creation of large-scale housing developments, tax benefits under Section 80-IA and Section 35AD (deductions to encourage private sector participation within the infrastructure sector) should be extended to integrated township projects, by including the same within the definition of infrastructure facility,” Magazine concludes.
Key expectations of the realty sector from Budget 2019
Rationalization of taxes and subsuming of stamp duty within the GST.
Resolving the NBFCs’ woes.
Working with the RBI on a mechanism to immediately pass on interest rate cut benefits, to home loan borrowers.
Accepting the long-standing demand of single-window clearances for projects.
Industry status for the real estate sector.
Financial support and wide-scale initiatives towards skill development.
Initiatives to promote artificial intelligence (AI) and technology in real estate, to achieve the ‘Housing for All’ mission.
Reducing corporate taxes.
More support for SEZ development.
5 expectations that Interim Budget 2019 must address, to uplift the real estate sector’s sentiment
With the real estate sector facing the problem of high inventory, low liquidity, and high input cost, we look at some of the top issues that one hopes the interim budget will address, for a revival of the sector
Update on February 1, 2019:
Tax exemptions proposed in Interim Budget 2019
As a once in a lifetime benefit, the of rollover of capital tax gains is proposed to be increased from investment in one residential house to that in two residential houses, for a taxpayer having capital gains of up to Rs 2 crores.
Exemption on notional rent on unsold inventory increased from 1 to 2 years – i.e., notional rent will be levied only after 2 years.
Affordable housing – Section 80IBA – benefits extended by another year if registered by 2020.
TDS exemption on rental income increased from Rs 1.8 lakhs to Rs 2.40 lakhs.
TDS threshold on interest earned from banks, FDs, etc. – raised from Rs 10,000 to Rs 40,000.
Notional rent to be exempt on the second self-occupied house.
Standard deduction raised from Rs 40,000 to Rs 50,000 for salaried classes.
Individual taxpayers with an annual income of up to Rs 5 lakhs to get a full tax rebate. Those with a gross income of Rs 6.5 lakhs may not be required to pay tax, if they do investments in specified savings like VPF, etc.
Aashish Agarwal
Head – consulting services at Colliers International India
With exemption on notional rent for self-occupied second homes, the Government has addressed a significant pain point for the middle class, particularly migrants with dependent parents. Along with capital gains exemption for up to two houses, this will allow people to have a diversified portfolio for real estate investment – which will spur demand across the country, including Tier 2 and Tier 3 cities.
Joe Verghese
Managing Director (south), Colliers International IndiaReview of “GST impact on homebuyers” by group of ministers is a positive step, but it is disappointing to note there is no timeline around the changes to be introduced and implemented. It’s will be a wait and watch on this front unfortunately.
The Indian economy is expected to remain one of the fastest growing economies in the world. This is possible, only if India’s realty sector performs well, as it contributes a significant portion to the GDP. Hence, there are hopes that the government will address several challenges faced by the sector, in the interim budget 2019. Some of these pertain to taxes, funding and liquidity, rental housing and project approvals. Experts also maintain that while the affordable housing segment has been granted infrastructure status, it would help if this was extended to other segments of residential housing, as well.
5 concerns that require attention in the interim budget 2019
According to Niranjan Hiranandani, co-founder and MD of the Hiranandani Group, the government should focus on the following concerns, in the interim budget 2019:
“Incentives for rental housing, to meet the acute shortage.
A clear policy roadmap for the creation of rental housing stock and exemption from the burden of tax on notional rental income.
Rationalisation of GST in case of under-construction properties – the GST should be pegged at either eight per cent with an input tax credit or five per cent without the input tax credit.
Focus on financial re-engineering concepts, to overcome the NBFC crisis and the challenge caused by the IL&FS default.
Incentives for new asset classes in real estate, like affordable housing, warehousing and logistics, co-working spaces, co-living spaces and light industrial spaces.”
Another demand that has been repeated in previous budgets, includes a smooth process for granting permissions and clearances, in a time-bound manner.
While generous funds were allocated for various highways projects in the previous budget, experts maintain that pace of building roads should increase, as improved connectivity is the lifeblood of the real estate industry.
Apart from that, the creation of more employment in the infrastructure sector can redeem the incumbent government’s well-documented shortfall on that front.
The expectation of the real estate sector, from budget 2019
Ashok Mohanani, chairman of Ekta World and vice-president, NAREDCO West, feels that home loan interest rates are the foremost concern of home buyers. “If the tax deduction limit is increased up to Rs five lakh from the present Rs two lakhs per annum, there will be a positive impact, which will help home buyers to save money on home loans,” he says.
The finance minister also needs to adopt a holistic view, while making proposals for real estate. As per data available from the Ministry of Housing Affairs, the total estimated investment under the Pradhan Mantri Awas Yojana (PMAY), as on January 2019, was Rs 3.87 lakh crores, of which the central government has sanctioned approximately 27 percent, while only 32 percent of the sanctioned amount has been released so far. Evidently, despite the government’s concerted efforts towards achieving its objective of ‘Housing for All by 2022’, the deficit is too large to ignore.
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