Housing for all by 2022?
Budget 2015 should propose a singlewindow clearance and availability of easy finance to ensure that most Indians have a roof over their heads
Homebuyers should be given incentives to boost the demand for affordable housing. This can be achieved by increasing the deduction limit of interest on housing loan from the existing 2,00,000 to at least 3,00,000
taxation under Sections 50C and 43CA of the Act create bottlenecks for genuine transactions where market value of immovable property is lower than the stamp duty rate. The provisions should be amended to exempt genuine transactions.
Developers focusing on the Special Economic Zone (‘SEZ’) segment have taken a backseat post introduction of DDT and MAT in the Finance Act, 2011. In the recent past, some of the developers have started exiting the SEZ segment either by de- notifying or by share deal. It is critical to re-introduce MAT and DDT exemption for SEZ developers to revive the SEZ space.
Expectations, especially those of the real estate sector, are high from the new government’s first full budget. The Prime Minister’s vision of Housing for All by 2022 has not only captured the interest of homebuyers but of the real estate developers as well.
This project has set a mammoth task for the NDA-led government. Realising the dream of housing for all by 2022 will require the government to lay the foundation for a strong enabling framework. The project faces several challenges, including absence of an effective policy framework, lack of tax incentives, sky rocketing real estate prices and inadequate availability of finances.
The government needs to address these key issues to give it the much-needed impetus and ensure that the vision becomes a reality.
Requirement of multiple approvals from various authorities add to the complexity and increase the overall development cost. Single-window clearance is the need of the hour to fasten the approval process, thereby reducing the overall project lifecycle and curbing the associated costs.
Another aspect that needs attention is the availability of easy, long-term finance to the sector. Lack of adequate finance can contribute to unwarranted delays and increase in cost of the project. Granting infrastructure status to housing and real estate development would help tackle this issue. It would provide the sector access to long-term affordable funding as well help it benefit from other incentives associated with the status.
Multiplicity of fees and taxes applicable to the sector is another dampener. As per a KPMG report, Decoding Housing for All by 2022, various taxes and levies on the sector go on to increase the housing cost by almost 30% to 35%. Clarity on inclusion of real estate under the ambit of goods and service tax (GST) regime would help in rationalisation of these taxes.
The current indirect tax regime also needs to be realigned to make housing for all a conducive proposition. Applicability of service tax on transfer of development rights is a controversial issue and clarity on it is required. Long-term leasing of land attracts service tax as well as stamp duty, thus subjecting the transaction to multiple taxes.
Availability of credit under service tax laws to the construction sector also needs to be revamped. Addressing these issues could accelerate this initiative.
Also, there is an urgent need to provide tax incentives to the developers and extend the same to homebuyers. Re-introduction of tax benefits under Section 80-IB of the Income Tax Act 1961 (the Act) for affordable housing could play a major role in encouraging low cost housing.
It would help in attracting private developers to contribute towards smaller housing units where demand exceeds supply.
At the same time homebuyers would also need to be incentivised to boost the demand for affordable housing. This can be achieved firstly by the government providing rebates in personal taxes to increase disposable income in their hands and by increasing the deduction limit of interest on housing loan from the existing ₹ 2,00,000 to atleast ₹ 3,00,000. Availability of low cost credit with interest subvention could make owning a home more affordable and attainable.