NRIs might put in 1,150 crore in realty market
To achieve the target of two crore housing for all by 2020, the government must provide infrastructure status to low cost housing to facilitate easy access to institutional finance and redefine priority housing to include first-timers aspiring to buy property in cities, say real estate experts.
On December 31, 2016, Prime Minister Narendra Modi announced an additional subsidy on home loan interest rates, saying that the government will facilitate 4% and 3% interest rate rebate for housing loans of up to ₹ 9 lakh and ₹ 12 lakh, respectively. The real estate sector is hoping that tempo will be maintained in the upcoming Budget and the government will consider granting infrastructure status to low- cost housing to provide an impetus to a sector suffering from the impact of demonetisation.
A key expectation f rom Budget 2017 is to have recognition for affordable housing as infrastructure since that would provide access to institutional finance, says Getamber Anand, president – Credai National.
To ensure that the sector achieves the target of delivering two crore houses by 2020, the government should announce measures to assist developers work towards that goal, says Deepak Kapoor, president, Credai Western UP. “As of now the affordable housing target is far behind and it can only be achieved if the sector gets accorded infrastructure status which would pave way for cheaper financial options for real estate developers,” says Prashant Tiwari, chairman, Prateek Group.
The government also needs to redefine priority housing. While it has defined the sizes – 30 sq m for the metropolitan cities and 60 sq m for urban markets – these units are mostly targeted at the lower income group. This needs to be expanded to meet the expectations of the urban middle class, especially those aspiring to buy for the first time homes in metro cities, say real estate experts.
“The ticket size of homes in urban centres is higher and cost more than ₹ 20 lakh to ₹ 50 lakh. Given the high cost of land, labour, material and cost of operations, developers can offer houses that are in the range of ₹ 80 lakh to ₹ 1.5 crore in these cities.
“The government must redefine priority housing to include houses that cost up to ₹ 1.5 crore and extend the benefits to first home buyers for homes of up to the aforementioned costs. Developers of such projects should also benefit from the gover nment f i nancing and other tax initiatives that are extended for housing development,” says Anshul Jain, managing director, India, Cushman & Wakefield.
Experts argue that since banks are flush with funds after the note ban, interest rate benefits should be passed on to consumers. The demonetisation drive and implementation of the Real Estate Regulatory Act (RERA) will help improve confidence of non-resident Indians to invest in the Indian residential market, pushing the total investment from this segment to touch ₹ 1,150 crore in the top eight cities this year, says a new report titled The Global Indian Fraternity, New Locomotive of Indian Real Estate by Square Yards.
This will be nearly double of NRI investments made in the country four years ago. About ₹ 1,150 crore of investment by NRIs is expected to come into the residential markets across cities in 2017, against ₹ 600 crore in 2013, says the report.
Over 20% of NRI investment in Indian real estate comes from UAE, followed by USA and Kingdom of Saudi Arabia. Other countries such as Canada, UK, Singapore and Australia are also a major source of NRI capital inflow in the Indian realty market. Demonetisation of ₹ 500 and ₹ 1,000 notes in November last year by the government will go a long way in instilling confidence among the NRI community. RERA is also aimed at nurturing a transparent and well-regulated real estate sector. Rolling out of GST will also add to the positive sentiment, says Kanika Gupta Shori COO and co-founder, Square Yards. The last three budgets saw the government dealing with and addressing legacy issues. Given the recent significant moves by the government around the Goods and Services Tax (GST) and demonetisation, the upcoming Budget will largely focus on driving its vision of Transform India. In this context, some of the expectations from the Budget 2017 include:
Conferring industry status to the real estate sector: The government should provide much-needed relief to the real estate sector by giving it a formal industry status. This will not only be beneficial for the sector, but also will benefit its allied sectors. The demand for this status has been unappeased for a while and has the potential to ease many of the hurdles currently faced by the industry.
Clarity on tax provisions relating to affordable housing projects: While the government currently provides a 100% deduction for the profits received by a tax payer who develops and builds affordable housing projects under the normal provisions of the Income-tax Act, the Minimum Alternative Tax (MAT) liability may still arise. The hope is that Budget 2017 will clarify this issue, which seems to be the primary reason for this initiative not becoming a reality.
The condition of completing the project within a period of three years from the date of approval seems unrealistic. It will pose challenges for developers attempting to make use of this incentive. As an alternative, a timeline of five years for completion of the project would be more feasible.
Concerns related to phasing out of tax exemptions/ incentives: Developers and occupiers of Special Economic Zones are hoping for a rollback of the inser- tion of the sunset clause. They fear that, going forward, the move to phase out exemptions/ incentives may dampen investment sentiments and hit export volumes.
Reduction of holding period of REIT/ InvIT units to qualify as long term capital assets: The primary aim of Real Estate Investment Trust (REIT)/ Infrastructure Investment Trust ( InvIT) units is to improve liquidity by encouraging small savings in the real estate and infrastructure sector. The existing holding period of 36 months for REIT/ InvIT units to qualify as long term capital assets is very long and can discourage investors. Therefore, the government should consider reducing that period to 12 months instead, as is the case with equity shares.
Clarity regarding taxability of rental income: There should be appropriate guidance for determination of the head under which rental income should be taxed, that is, whether it should be taxed under Income from House Property (IHP) or Profits and Gains of Business or Profession (PGBP). In this regard, the government could refer to the Supreme Court decision on the topic, wherein they held that if the main object of the entity is to acquire and hold properties for letting out, the rental income received from letting out of such properties should be taxed under the head PGBP and not IHP. This will bring certainty and clarity on the matter and reduce litigation.
The recent decisions taken by the government to transform the Indian economy have seen many changes being brought in particularly for the real estate sector, and the relaxation of the FDI rules was the most notable of these changes. While the dust is still settling around these moves, Budget 2017 will be keenly awaited.
Realty stakeholders hope that the government will provide high tax incentives on home loans to boost demand for housing.
A timeline of five years for completion of housing projects would be more feasible, say experts.