Re­viv­ing the real es­tate sec­tor

Ex­perts say that the new govt should abol­ish the mul­ti­ple tax regime and raise tax lim­its on home loans to 5 lakh

HT Estates - - FRONT PAGE - Van­dana Ram­nani


The real es­tate sec­tor gen­er­ates max­i­mum em­ploy­ment in In­dia af­ter agri­cul­ture. With a growth rate of about 20% per an­num, it has been con­tribut­ing about 5% to 6% to In­dia’s GDP. What will en­sure the growth and de­vel­op­ment of this sec­tor? There are def­i­nitely many im­por­tant is­sues that need to be tack­led by the new gov­ern­ment when it takes over the reins at the Cen­tre.

Ex­perts say that the ex­ist­ing tax ben­e­fits on home loan in­ter­est and prin­ci­pal, in­tro­duced more than a decade ago, are grossly in­ad­e­quate. The sub­ject in­ter­est limit has re­mained un­changed for more than 10 years. In­fla­tion and the con­se­quen­tial in­crease in res­i­den­tial prop­erty prices, have led to a huge in­crease in home loan amount and in­ter­ests. The new gov­ern­ment should in­crease the in­ter­est limit from ` 1.5 lakh to ` 5 lakh, which would pro­vide much relief to the home­buy­ers and the nec­es­sary fil­lip to the real es­tate in­dus­try, says Neeraj Bansal, part­ner and head, real es­tate and con­struc­tion, KPMG in In­dia.

Mul­ti­ple ap­provals, too, are a prob­lem. To be­gin con­struc­tion, a de­vel­oper has to get ap­provals for build­ing lay­outs, own­er­ship, en­vi­ron­ment clear­ances, struc­tural plan­ning, util­i­ties, amongst oth­ers. This can be very time- con­sum­ing, de­lay de­liv­ery dead­lines and the re­sul­tant cost es­ca­la­tion can trickle down to buy­ers. “Hence, it is im­por­tant to fa­cil­i­tate pol­icy mea­sures that stream­line ap­proval pro­cesses (both at state and na­tional lev­els), which help re­duce the num­ber of ap­provals. This can be ena- bled by es­tab­lish­ing reg­u­la­tory bod­ies/in­vest­ment boards to over­see the ap­proval pro­cesses, es­pe­cially for large scale in­te­grated town­ships. Once these bot­tle­necks are ad­dressed, we can ex­pect the eco­nomic con­tri­bu­tion of the sec­tor to in­crease con­sid­er­ably,” says Renu Sud Kar­nad, man­ag­ing di­rec­tor, HDFC Ltd.

Value added tax is an­other prob­lem. It is gen­er­ally levied on goods (about 4%) but buy­ers are also ex­pected to pay 3% ser­vice tax and a stamp duty of around 6 to 7%. Ex­perts say that con­structed prop­erty is not treated as goods or ser­vices as it is im­mov­able prop­erty. How­ever, the is­sue around levy of VAT and ser­vice tax arises when an un­der- con­structed prop­erty is sold. Ig­nor­ing the tech­ni­cal­i­ties, and re­spect­ing the Supreme Court ver­dict, from an eq­uity per­spec­tive, the new gov­ern­ment should ra­tio­nalise the ap­pli­ca­ble levies and avoid mul­ti­plic­ity of levies on the same trans­ac­tion as it re­sults in in­crease in prop­erty prices, im­pos­ing an ad­di­tional bur­den on the home­buyer.

Sale of pre-con­structed prop­erty is sale of an im­mov­able prop­erty and can­not be con­sid­ered as ‘ sale of goods’ or ‘ser­vices’. Hence, only stamp duty and no VAT or ser­vice tax should be levied on it. Ser­vice tax (be­ing a cen­tral levy) on such trans­ac­tion should be re­viewed by the new gov­ern­ment as per the Con­sti­tu­tion of In­dia for levy of taxes. The VAT im­pli­ca­tions would still re­main a mat­ter of de­bate and Sec­tor 7 Sec­tor 8 Sec­tor 9

a so­lu­tion may be avail­able only on re­vi­sion of the de­ci­sion of L& T by t he con­sti­tu­tional bench of the Supreme Court. Al­ter­na­tively, the early im­ple­men­ta­tion of the goods and ser­vice tax ap­pears to be the most fea­si­ble so­lu­tion to such mul­ti­plic­ity of taxes, says Maad­hav Pod­dar, Ernst & Young.

The new gov­ern­ment should has­ten to fi­nalise and im­ple­ment the draft REIT reg­u­la­tions is­sued by SEBI along with bring­ing in clar­ity on re­lated tax as­pects and for­eign in­vest­ment in REITs. Cre­ation of a new in­stru­ment which can be pub­licly listed and traded on the ex­changes would bring in a source of cap­i­tal to the cash-strapped sec­tor. It would help de­vel­op­ers liq­ui­date rent-yield­ing as­sets and utilise such funds to de­liver res­i­den­tial projects stalled be­cause of a fund crunch.

The new gov­ern­ment should lib­er­alise for­eign in­vest­ment guide­lines for the sec­tor. The orig­i­nal guide­lines, is­sued nine years back in March 2005, need a re-look and sub­stan­tial changes to help the sec­tor evolve to its

next stage. These re­late to (i) min­i­mum cap­i­tal­i­sa­tion - to be re­duced (ii) min­i­mum size - to be re­duced (iii) lock-in on in­vestors - to be re­moved (iv) mixed-use projects - no con­di­tions to ap­ply (v) sale of un­de­vel­oped land in ex­cep­tional cir­cum­stances - to be al­lowed etc. For­eign in­vest­ment con­tin­ues to be an im­por­tant source of cap­i­tal for the sec­tor and needs to be en­cour­aged.

Rana Kapoor, pres­i­dent, ASSOCHAM, ex­pects mod­i­fi­ca­tion in the pol­icy stance to fa­cil­i­tate avail­abil­ity of de­vel­oped land and sin­gle win­dow clear­ances for projects to en­cour­age pri­vate sec­tor in­vest­ment, which will pro­vide a much needed fil­lip

to the hous­ing in­dus­try.

“We rec­om­mend that the gov­ern­ment grant in­fra­struc­ture sta­tus to the af­ford­able hous­ing sec­tor to at­tract more cap­i­tal and to al­low in­sur­ance/pen­sion funds to in­vest in the af­ford­able hous­ing sec­tor. The hous­ing and con­struc­tion in­dus­try is crit­i­cal as it is the sec­ond largest em­ployer in the coun­try af­ter agri­cul­ture, sup­ports more than 250 an­cil­lary in­dus­tries and con­trib­utes nearly 10% to the GDP. Im­pe­tus to the hous­ing sec­tor in the econ­omy will gen­er­ate em­ploy­ment op­por­tu­ni­ties of ` 60,000 crore,” he says. The Chin­tels Group has an­nounced the launch of its res­i­den­tial project Chin­tels Seren­ity in sec­tor 109 on the out­skirts of Dwarka phase II, New Delhi. Re­defin­ing the con­cepts of lux­ury and har­mony, Chin­tels Seren­ity will have 370 neo-lux­ury, life­style 3-4 bed­room apart­ments in­clud­ing pent­houses spread across an area of 1 mil­lion square feet and will con­sist of nine high-rise tow­ers. The size of the apart­ments will be in the range of 2100 sq ft- 6500 sq ft. The unique fea­tures that set these apart­ments apart from other projects in the cat­e­gory are a mix of con­tem­po­rary ar­chi­tec­ture, cut­tingedge de­sign with only two apart­ments per floor, to name a few.


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