House That for Renovation!
The recent policy push for housing and real estate should shore up investment and boost the growth momentum going forward. Abroad, in the mature markets, real estate contributes almost 50% to overall economic growth, and there is no reason for the corresponding figure, which is barely in double digits here, to remain rangebound nationally.
The way ahead is to proactively remove the policy glitches that remain, such as high stamp duty and registration charges across states, so as to standardise the norms pan-India. It is notable that the Securities and Exchange Board of India’s (Sebi) revised rules for real estate investment trusts (REIT), issued on November 30, the prime minister’s New Year’s Eve announcement and the Union Budget all seek to boost resource allocation for housing and real estate.
The Budget, in fact, proposes prudent fiscal consolidation even as it seeks to rev up microeconomic efficiency and transparency in the realm of housing and built spaces. Notice that the move to rationalise capital gains taxation provisions in respect of land and buildings was long overdue. The base year for indexation is proposed to be shifted from 1981 to 2001 for all classes of assets, including immovable property.
The move should disincentivise black money generation, and lead to greater disclosure in housing and real estate transactions. The idea is to significantly bring down capital gains tax liability and also encourage “mobility of assets”, which is clearly unexceptionable. Also, infrastructure status for affordable housing makes perfect sense. It would much improve resource allocation for housing and real estate. It would actually shore up much-needed urbanisation.
The plan to rationalise the norms and guidelines for affordable housing in the metros and beyond is also sensible, and would better coagulate funds on the ground. As would the longer timeline for promoting affordable housing projects. It would step up supply.
Further, the move to rationalise postcompletion tax on housing projects is in the right direction of reform. At present, dwelling units that are unoccupied after being granted completion certificates are subject to tax on notional income. And the proposal, instead, to do so “only after one year of the end of the year” of receipt of completion certificate is much warranted, so as to liquidate inventory with builders.
Similarly, when it comes to joint development agreement signed for property development, the proposal that the liability to pay capital gains tax will only arise in the year the project is completed is sound. More reasonable taxation would boost transparency in real estate.
Additionally, the plan to exempt capital gains tax on land held prior to a certain date, for the new capital of Andhra Pradesh, is a forward-looking incentive. There should be much scope for such pooling of land to build new cities, using the instrument of capitalgain exemption. We do need to proactively urbanise.
Meanwhile, the capital markets regulator, Sebi, has upended the norms for REITs. The very definition of housing and real estate has been broadened to include hotels, hospitals and convention centres. It would boost investor returns and make the trusts more attractive investments. This should boost sectoral funds flow. In tandem, the norms for structuring special purpose vehicles in REITs have been revised, updated and made more investor-friendly. The fact of the matter is that REITs remain attractive investments in the advanced economies despite lacklustre growth prospects there. The revised norms should step up REIT activity.
Also reportedly in the works is an augmented upfront government subsidy of up to .₹ 2.4 lakh under the Pradhan Mantri Awas Yojana, as per the PM’s address to the nation on December 31. The scheme has yet to be notified, but reports say it would apply, conditionally, to first-time home buyers who bought houses on or after January 1. Perhaps this is how the government plans to capitalise the gains from demonetisation and clamp down on black money.
For the recent policy changes to pay rich dividends, we do need to step up oversight and direction in housing and real estate. The way forward is to have structures and provisions in place as per the Real Estate (Regulation and Development) Act, 2016. The indexation base year for calculating capital gain tax on property transactions needs to be duly changed on a decadal basis, for predictability and certainty.
It is also a fact that stamp duty and registration charges can be as high as 12-13% of house prices, which does mean huge transaction costs. It needs to be moderated, and for which we need consensus across states.
Transparency in housing would stem black money generation.
Darn, blueprint hit the fan