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Real Estate Expectations On A High

Monday, February 09, 2015

Yes, this is a sector which needs special attention. Will the Finance Minister oblige?

Anuj Puri, Chairman & Country Head, JLL India

Provide On-Ground Impetus For Affordable Housing
In the previous nine-month Budget, the new government outlined its vision for boosting affordable housing. From the upcoming 12-month budget, the Indian real estate sector looks forward to provisions that firm this vision up on the ground.

Provide Tax Incentives To Boost Rental Housing Segment
The Union Budget needs to provide tax incentives for renting out of residential properties. Currently, rental income is treated as normal taxable income. Providing tax breaks specific to rental income will give a significant boost to rental housing segment in the country, and help increase rental supply in the metros.

Enable Faster Project Approvals
Developers have been campaigning for a faster project approval process for good reasons. Faster approvals would beef up the supply pipeline, help bring prices down and also ensure that real estate remain viable as a business. The Budget should provide suitable relief on this front, while simultaneously ensuring that construction quality norms are not compromised in the process and that faster approvals do not result in support infrastructure failure in new precincts being developed.

Implement RERA
The approval of the pending Real Estate Regulatory Bill was deferred once again only recently. It must now be implemented so that the Indian real estate market becomes attractive for foreign investors. The upcoming Union Budget should make this vitally required policy a reality and put an end to the suspense.

Relax Counter-Productive Clauses In LARR Act
The LARR (Land Acquisition, Rehabilitation and Resettlement) Act, formulated and re-formulated several times, has so far failed to counter land-related bureaucracy in India and has to date done quite the opposite. In its current form, it is a deterrent for developers as well as institutional investors. The real estate sector is desperate to get past this hurdle, because a lot more land must be made available for primary real estate development as well as for infrastructure development. Given the new government’s focus on ‘housing for all’, fast-tracking of infrastructure and the creation of 100 smart cities across the country, the Union Budget should present a workable and streamlined LARR Act, with significant relaxation in the currently tedious rehabilitation clauses and other norms.

Provide More Incentives For Sustainable Real Estate
The upcoming Union Budget should make a clear benefit statement for consumers of green real estate in the country. Stakeholders of the residential real estate sector in India definitely need greater encouragement to go green. Most home buyers in India are still quite averse to paying an extra premium for a green residential project. Because of the low demand, developers are not sufficiently active in this segment. There is a distinct need for a combination of incentives and stipulates to boost the development and consumption of sustainable real estate development in India. The Union Budget should address this lacuna by announcing State-level subsidies for development of green spaces so that developers can keep their development cost at par with non-green spaces.

Fast-Track REITs
Many overseas investment funds have so far abstained from the Indian real estate market because of the lack of regulation, political instability and bureaucratic quagmire. The new government has the opportunity of making Indian real estate more investment-friendly and attractive by introducing a revised tax code. Until vital changes to overcome the tax hurdles, REITs - which can literally be a life-saver for Indian real estate - cannot take off. In the interest of the real estate sector as well as the overall economy, the Budget must address this issue.

Encourage FII Participation In Infrastructure
India is still an infrastructure deficient country and needs large investments to help bridge the infra gap. The Union Budget should make more provisions to increase foreign investors’ participation in this sector.

Sanjay Dutt , Exec. MD, South Asia – Cushman & Wakefield

Tax Incentives Will Help
In its maiden Budget last year, the Narendra Modi led government had introduced a number of initiatives targeting the real estate sector. Further, other initiatives to boost economic growth also created a favourable impact on the real estate sector as institutional investments, including foreign capital, have been invested in record volumes over the last year. The effect on the office sector has been especially profound. However, the residential and retail asset classes within the real estate sector are still struggling with depressed demand and a number of other issues. Hence, the expectations of the real estate sector for the upcoming Union Budget 2015 are extremely high as all stakeholders, including the developers, lenders, end-users and investors are eager to analyze the road map of development that the government will unveil for the year. Policies tackling the all-important four ‘I’s – Inflation, Interest rates, Infrastructure development and Investments will be most keenly watched as these are required to boost the demand and supply of homes.

Meanwhile, corporate occupiers continue to watch out for measures that will govern ease of doing business in India. Governance, infrastructure development and skill development are critical pillars that the government has promised delivery on and business houses will look for those distinct overtones in the Budget speech.

Expectations from the Budget:

  • There is a strong need for the government to reconsider the decision to impose levies such as Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) in SEZs.
  • Introduce uniform tax regime Direct Tax Code (DTC) and Goods and Services Tax (GST) and rationalize stamp duty across states so that there is a higher degree of standardization.
  • Income Tax deduction under Section 80-IB is currently allowed to developers to build affordable housing projects sanctioned on or before March 31, 2008. As this date has not been extended, it needs to be re-introduced in the Parliament in order to generate interest of developers in Low Income Group (LIG) housing where demand exceeds supply substantially.
  • Re-introduce the interest subvention for affordable housing, which was 1% on housing loans of up to Rs. 25 lakhs for houses that were valued at up to Rs. 40 lakhs. This will continue to have a positive impact on residential sales in small cities and towns and peripheral locations of major metros where such units are available.
  • Introduce and encourage building rental housing and affordable housing projects; make efforts to enhance supply side factors especially in cities such as Mumbai and the Delhi National Capital Region (NCR). The necessary funding could be either provided through budgetary allocations or with the Credit Guarantee Trust Fund, setup by the Government last year, guaranteeing the loans taken for such projects.
  • Enact provisions for Special Residential Zones (SRZs) to incentivize the growth of housing stock, especially in peripheral city limits and other targeted locations.
  • Introduce special incentives for the development of new smart cities.
  • Provide tax incentives to boost retail investments in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs); specifically, exemption from DDT and capital gains on transfer of assets to REITs.
  • Provide clarity on whether FDI is allowed in owning other built commercial asset classes such as shopping centres / malls.

Expectations are riding high that the central government will continue to push for reforms that were so far left in the backburner and are much needed to revitalize the economy. As the Government has pointed out time and time again, revival of economic growth is its top agenda and the real estate sector will benefit immensely from this.

In addition to introducing suitable policy reforms in the Budget, the central government also needs to pass the proposed Real Estate Regulation Bill and implement it in on a priority basis to bring in more transparency and best practices to the real estate sector.

Nimesh Bhandari, Co- Founder & CEO, Realtycompass.com
“We expect the government to boost the real estate sector by giving higher tax benefit to people. As of now, the relief of principal payment of home loan is part of Section 80 CC which is not enough, even though it was raised to 1.5L under last budget. For a loan of 50L the yearly principal payment works out to be roughly 2L Rs. Given that the person also invests in other saving instruments like LIC etc., the limit for the home loan borrowers should be increased to 2.5L.

Also to re-invigorate the real estate cycle, people who need to sell their current house and want to move to a bigger house need to be incentivized. One way to do that is to announce a holiday on short-term capital gains tax for one year provided people sell their house and buy a new one within 1 year. This measure will ensure that need based second time home buyers are moving to bigger house, ensuring that there is ample supply at attractive price available for first time home buyers."

Anubhav Jain, Director, Group Silverglades
In this budget we expect Government to continue with positive policy announcements to improve business environment and give strong push to growth. This year the growth prospects look better than the last year for all sectors and as a developer we expect a lot in term of attention and revenue for the sector. The long pending demand to announce real estate sector as an industry is foremost concern.The Government should also ensure quick passage of Goods and Service Tax which will replace numerous taxes and help the consumers. The deduction for interest on housing loans needs to increase from the current limit. Removal of numerous taxes can encourage real estate sector on large scale.

Anil Pharande, CMD, Pharande Spaces
From the real estate sector's perspective, there are many aspects that the Union Budget should address this year. One of the foremost is further reducing the bureaucratic red tape involved in project development. Expedited clearances for a larger segment of residential projects will be a key for reducing project delays. An announcement that streamlines the process of obtaining clearances will go a very long way in boosting the real estate industry.  We also expect the budget to make announcements regarding the regulation of construction material costs. because of this. The costs of raw materials such as cement and steel need to be brought down or an upper ceiling imposed on their prices.

Mohit Goel, CEO, Omaxe Ltd.
Post the interim Budget, where a number of positive announcements were made, the macroeconomic indicators have improved with inflation and industrial growth showing positive signals. The coming Budget is expected to continue with positive policy changes in order to improve business environment and give strong push to growth. Government has been moving steadily on Smart Cities and the Budget will have a lot of announcements on this front including the broader contours. With several countries pledging support including the US, Singapore etc. Smart cities will bring in a lot of opportunities for private developers. The Government must further liberalize and allow FDI in other segments, after allowing the same in construction and affordable housing. The Government must re-introduce tax benefit under section 80 IB (10) of the Income Tax Act in order to overcome the supply gap and fulfill the vision of Housing for all by 2022. This benefit should also be extended to Smart Cities, affordable housing and re-development. The real estate sector is expecting its long pending demand of grant of infrastructure status. It will immensely help the sector to access easy finance. A single window clearance mechanism is the need of the hour when implementation of project is the key to investment and growth in the country today. GST is an important tax regime and will benefit the economy going forward. Inclusion of real estate in GST is something that needs a holistic view but we believe its inclusion will bring about a lot of transparency in the sector. Taxes comprise a major portion in a property purchase and it must be rationalized. While a cut in interest rate by RBI isn’t alone enough, buyers, too, have to be incentivized through rebate in Personal Income Tax and more money be put into their hands in order to drive demand.

Kishor Pate, CMD, Amit Enterprises Housing Ltd
The Union Budget 2015-16 should remove the multiple taxes that are associated with home purchase. As of now, home purchasers are required to pay service tax and value-added tax (VAT) on top of stamp duty and registration charges. Goods and Service Tax (GST) should be introduced in the place of these taxes. Also, the real estate industry expects the Budget to finally make the Real Estate Regulatory bill a reality this year, so that the industry has the benefit of an apex body via which all concerns can be addressed transparently and efficiently.

Another expectation from the Union Budget is that it will announce a reduction in the cost of property registration. The recent hike in ready reckoner rates in Maharashtra has been a sentiment setback for the real estate sector. Stamp duty and registration costs are as high as 6% in most cases, and this needs to be reduced by a few base points to aid consumers. Alternatively, a slab-based approach should be introduced. Stamp duty falls under state government purview, but the Center can nevertheless issue a directive to reduce stamp duty costs.

Arvind Jain, Managing Director, Pride Group
We real estate sector was cheered by the recent cut in interest rates, but it was by itself not sufficient to amount to any real advantage to home buyers. The Union budget should bring a significant decrease in interest rates on home loans. The Ministry for Urban Development and Housing had made it clear that it would maintain a sharp focus on reducing home loan interest rates, and the budget will hopefully bring firm evidence of this focus.

Developers, home buyers and banks are all keenly awaiting such an announcement, which would bring with it a significant revival in sentiment.

Also, the budget needs to do something to bring down the cost of borrowing for developers, because raising capital for development of new projects remains a huge challenge. Lending rates for real estate development currently range between 12-14%, and raising funds through other sources is even more expensive.

The interest rates on lending to real estate developers should be brought down so as to help rationalize the cost of construction. This would also help in bringing down property prices.

Hariprakash Pandey, Vice President, Finance and Investor Relations, HDIL
“We expect that this Budget will be growth oriented one that would fuel in investments and through reform measures and stable taxation policies, would facilitate ease of doing business in India.

Even though there have been a slew of reform announcements in recent times, one expects to hear some more reformative measures being announced on the floor of Lok Sabha during this budget session.

Granting ‘infrastructure’ status to the real estate sector and a single window clearance mechanism has been two of our long pending demands. These would enable easy flow of funds to the sector and fast track the approval process thereby enabling removal of impediments from the growth of the real estate sector. We expect further boost for the affordable housing sector.

Formal announcement of implementation of GST (Goods and Services Tax) will be a key booster for the overall economy.”

Lalit Kumar Jain, CREDAI Chairman and CMD of KUL
With lots said and positive hopes shown in the first budget by the NDA government, expectations are high of a massively reformist Union Budget that would give the somnolent economy the jolt it badly needs.

Prime Minister Narendra Modi appears to be  taking calculated  measures towards his vision of a 'Shresht Bharat'. One sincerely hopes that Union Finance Minister Mr. Arun Jaitley, will outline a comprehensive plan to boost economic growth by reviving investments and narrowing fiscal deficit. In short, the budget will be first glimpse into the framework of the new government’s economic agenda for the coming years.

There are quite a lot of aspects that need immediate consideration for action as we lost a lot of time in empty promises and hollow talk.

Affordable Housing Policy is the need of the hour and everybody talks about its and none do anything about it. The least the government can do is to implement the recommendations of a Task force of appointed by government.

First of all, Housing deserves the status of an industry and affordable housing a priority treatment with direct and indirect tax concessions since it addresses the needs of the poor.

The recent cut in repo rate is a “good beginning”, though “This is not enough.”

What is needed is, a roll back of all liquidity tightening measures and easing the situation to make cost of funding for both home buyers and developers cheaper than what it is today. A reduction of 200 basis points (reduction of interest rate by 2%) within short span is needed. And if the RBI does not act, the government must take appropriate steps to ease fund restrictions for realty.

RBI also needs to look at the housing sector favourably, and certainly not with negative weightage, as it contributes handsomely to the GDP apart from generating large scale employment across other dependent industries as well.

Another long pending issue in the sector is Single Window Clearance. Currently the approval process is very lengthy and takes around one-and-a-half yrs to 2 years for approval. The cost of delay in approval adds further to customers spending by 25 to 40%. Gujarat and Punjab have already implemented a single window clearance system which has given a boost to the sector in these states.

We expect the following to be executed immediately and in a short period of time.

Efficient and accountable governance in Building Approval Process by an appropriate initiative at Centre, with all state government officials following a proper and a firm route.

CREDAI as a real estate body shall make an attempt to present to Honorable PM and the concerned ministers to accelerate growth (GDP) through housing sector.

The recent hike in the ready reckoner could make property expensive and will most likely dampen hopes of home buyers waiting for a fall in property prices. It will also make it difficult for builders to get rid of an increasingly bloated inventory. There has been a revival in the real estate sector over the last few months, and now this hike will certainly hamper that positive sentiment. "Buyers' outgo will increase now and will impact sales absorption further. Any increase in RR rates will have to be passed on to home buyers. This will lead to a decrease in demand for housing.

There will be complication with respect to section 43c of Income tax act where if ready reckoner prices are higher than transaction value then both parties have to pay income tax on differential amount.

The government wants to encourage affordable housing but the increase in ready reckoner rates is contrary to that move. Home buyers will further defer the purchase of property, resulting in an increase in unsold inventory. The Government should instead focus on lowering the taxes in order to make housing affordable to people.

When we talk of economic growth its important to keep cost of business and housing low. All these actions would otherwise stand contrary.

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