Pinning hopes on the budget
In the challenging market conditions, realty stakeholders pin high hopes on the Union budget 2017
It would be an understatement to characterize the current realty market conditions as tough. For starters, for most end-users, finding a house of choice within their family budget is a tough proposition, that is the case even after five years of sharp price corrections. Home prices are still beyond the reach of most buyers. For developers, market slowdown means low demand, low growth, sharply declining margins, and even a question mark over their survival. Also, the image of housing as an investment asset has been severely dented in the last five years as returns from the sector turned negative. Consequently, the investor sentiment is subdued. In the midst of such gloom, the realty stakeholders are pinning high hopes on the Union Budget to boost demand and growth prospects in the sector.
Provide clarity on Goods and Services Tax (GST)
While the GST (goods and services tax) structure was announced last year, the real estate industry is expecting greater clarity over what tax rate is applied to the real estate and construction industry. Clarity is also expected on 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 R1 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,” says, Anuj Puri, chairman and country head, JLL India.
The long standing demand of the realty stakeholders for granting industry status to the sector is still pending. There are expectations that the Budget 2017 would contain such provision for the sector. “In spite of being second highest occupation in the country after agriculture, real estate is still not being recognized as an industry. We are expecting government to give industry status to the real estate sector in place of granting only infrastructure status to the affordable homes segment. In the absence of industry status, developers are compelled to borrow money on high interest rate leading to high cost of the end product which is not in favor of customers. Giving industry status to the entire real estate sector would help in pushing the housing demand in the country and help create lots of employment opportunity,” says Mohit Goel, chief executive officer, Omaxe Ltd.
Clarity on beneficiaries under PMAY
The government recently announced that interest rates of 3% would be applicable on loans of up to R12 lakh and 4% on loans of up to R9 lakh, under the Pradhan Mantri Awas Yojana (PMAY). Now that two new income categories can avail higher loans with interest subsidies. Realty stakeholders expect, the Budget to give more clarity on the actual definition of beneficiaries who can avail of these benefits.
Provide more tax incentives to home buyers
First-time home buyers were given additional R50,000 tax exemption in the last Budget for a house worth up to R50 lakh with a loan of up to R35 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, say real estate experts. “While first time home buyers should be incentivised with more tax incentives for securing loans, the government should increase the tax deduction limit for housing loans. The current limit of R2 lakh is insignificant, given the ticket sizes in cities such as Delhi and Mumbai, where premium properties or three-bedroom apartments come over R50 lakh and above. Additionally, the government should give more room across each tax slabs to help the end users. Any effort in this direction will help the govern- ment to achieve its housing for all target by 2022,” says Gaurav Jain, managing director and chief executive officer, Jindal Realty Pvt Ltd. 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 selfemployed person or those who draw lump sum pays without an HRA component can only claim a maximum deduction of R5,000 a month under Section 80GG. The Finance Minister can make this limit more realistic and bring it in sync with today’s housing rents,” says, Puri.
The Real Estate Investment Trusts (REIT) can boost growth in the realty sector and augment investor participation in the sector. In last year’s budget a major impediment for successful listing of REITS, the Dividend Distribution Tax (DDT) was removed, this year’s budget should, “should simplify the taxation norms for REITS,” says Prateek Mittal, chairman, Chairman of Real Estate and Infrastructure, Regional Council (North India), ASSOCHAM (Associated Chambers of Commerce of India).