Like all sectors, the real estate segment is also looking at this year’s Union Budget with hope and expects changes ranging from service tax restructure relaxation to the long pending demand of industry status. Realty experts foresee this year to be a lucrative one for the sector, which appears optimistic towards the budget.
Although, the office space saw some pick-up in activity in the year gone by, but the residential sector continues to reel under slowdown due to high unsold inventory amid few new launches.
Realty experts hope that Finance Minister Arun Jaitley through his Union Budget announcements on Feb 29 may bring in cheer for both home buyers and developers. If this happens it may have a direct impact on the sentiment of prospective home buyers and it may reinstate their trust in the realty market.
“With the upcoming Union Budget 2016-17, realty experts and the property buyers are once again pinning high hopes from the government. The sector, reeling under pressure over the last one to two years, needs significant push in terms of project approvals, taxation policies, industry status, to name a few. One may opine that these have been the key budget expectations over the last three years but there has been little done so far. With overall sentiments of buyers looking significantly positive and realty experts hoping for lucrative 2016, budget will set the tone for the realty sector over the year,” Sumit Jain, CEO and co-founder, CommonFloor said.
Experts also hope that GST Bill may get a passage this budget session that can replace multiple taxes (service tax, VAT etc) when purchasing flats. Currently, home buyers are liable to pay multiple taxes on purchase of under-construction properties. In addition to the Stamp Duty and Registration Charges, other taxes such as Service Tax, VAT, Excise Duty, Custom Duty and Entry Tax, among others, are levied on home buyers. This combines to form about 22-25 per cent of the total cost of the unit. Since the focus is on affordable housing, the government must pass the Goods and Service Tax Bill in the Rajya Sabha.
With the help of experts, we list out 5 broad expectation from the Union Budget vis-a-vis realty sector:
1. Tax benefits for buyers: The call for hiking deduction limit on the interest component of home loans is the significant change that realty experts want this budget to offer. They believe this would boost housing demand. On purchase into an under-construction property, buyers can only claim tax benefits of Rs 2 lakh after possession if construction is completed within three years. The benefits reduce to Rs 30,000 if the builder delays construction beyond this – and they pay higher interest. First-time home buyers purchasing properties for self-use additionally pay rent.
Anuj Puri, chairman & country head, JLL India said, “Instead of allowing home buyers tax benefits post-possession, the Union Budget should make a provision that allows these from the time they start paying interest on housing loans. This will ease their monetary burden considerably and make increase the velocity of home loan disbursements.”
He furter adds similarly, if an under-construction property is purchased from capital gains, its construction must be completed within three years of its sale to avail exemption. There can be delays by developer in such cases too. These deductions should be brought at par and the construction timeline should be extended from the current three years to five years.
2. Single window clearance: The Union Budget should pay specific heed to this particular need from developers to avoid delays in project, feel developers. Procedural delays developing due to clearance at multiple levels are among the major reasons behind the construction delays, finally adding to the woes of home buyers.
“The sector expects a single window clearance system from the Budget so as to reduce time and cost involved in getting permissions between various departments. It is estimated to account for nearly 25 per cent of the cost paid by the buyers. Constant hindrances including speedy government approvals ultimately result in delayed deliveries,” CommonFloor’s Jain said.
3. Industry status for realty sector: This has been a long pending demand of the real estate sector. Experts see this as a game-changer move for the real estate sector that if implemented could benefit both consumer and developers alike.
“An industry status will serve as a game-changer since cost of funding provided to developers will come down significantly, and they can, in turn, pass on the benefits to the consumers, hence propelling sale volumes,” said Narasimha Jayakumar, Chief Business Officer 99 acres.com.
Jain of Commonfloor also expects an industry status from the coming budget as real estate sector contributes nearly 7 per cent to the country’s GDP.
4. Real Estate Bill passage and implementation: Union Cabinet last year approved the Real Estate Development and Regulation Bill, which has yet to become a law. The approval boosted buyers confidence as if accepted it would make real estate more transparent and organised. Realty experts want the Bill to be made into a law at the earliest to look into the concerns and issues within the sector.
“Discussions around the Real Estate Bill must reach a positive conclusion, which will give home buyers the confidence to return to the market and deal with responsible builders,” said SARE Homes managing director David Walker.
Pinning hopes on the forthcoming Budget Jayakumar calls for expedititing the process of turning the Real Estate Bill into a law. He says, “Aimed at protecting the interests of residential as well as commercial property buyers, by promoting transparency and accountability into the sector, the Bill makes it mandatory for registration of all projects and real estate agents who intend to sell any plot, apartment or building with the Real Estate Regulatory Authority. It includes ongoing projects too that have not received Completion Certificates so far and these projects, the Bill states, need to be registered with the Regulator within 3 months.”
However, Urban Development Minister M Venkaiah Naidu on Feb 12 expressed hope that the Bill will get passed in the upcoming Budget session.
5. Tax sops and Real Estate Investment Trusts(REITs): Dividend Distribution tax (DDT) has remained the biggest bottleneck in REITs, which has not yet kicked off in India. There has not been a single REIT listing in India to date due to DDT ever since its announcement.
“Despite the announcement last year, there has not been a single REIT listing in India to date. The primary reason is the presence of Dividend Distribution Tax (DDT).
While the government has worked towards removing other bottlenecks, DDT has remained a key pending issue. Developers and other asset holders need the government to do away with it in the Budget 2016. Until this vital change is made, REITs – which can almost single-handedly revive the Indian real estate sector – will remain pipped at the post. To aid the faster revival of the real estate sector as well as to provide a significant boost to the economy in general, the Budget must address this issue,” JLL’s Puri said.
