House That for Ren­o­va­tion!

The Economic Times - - The Edit Page - Jaideep Mishra

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

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