NRIs might put in 1,150 crore in re­alty mar­ket

HT Estates - - FRONT PAGE - HT Es­tates Cor­re­spon­dent Van­dana Ram­nani Ab­hishek Goenka

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.

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