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Real Estate Industry’s Budget Expectations for 2017-18

Monday, January 16, 2017
By Dominic Rebello

The real estate industry has a lot of expectation from the Union Budget 2017-18, to be presented by Finance Minister Arun Jaitley on February 1st 2017.

Issues ranging from clarity on Pradhan Mantri Awas Yojana (PMAY), clarity on GST, incentives for first-time home-buyers, raising house rent allowance (HRA) are some of the issues the industry is expecting from the budget.

While demonetisation has hit the sector hard, the industry is expecting to recover from the slump by finding customers with white money. With interest rates expected to decline further, many genuine investors are waiting for the right opportunity to purchase their dream house. With the forthcoming budget, investors are awaiting further incentives from the government to take the plunge.

Below are a few industry experts demands from the government for the real estate sector.

  • It’s time for the Industry to acknowledge that Demonetisation had a severe impact on sales, as potential buyers kept on postponing their purchase decision, waiting for an imaginary fall in property prices. The Dec 31 announcement of the PM will help the ultra-affordable segment quite a lot. The Home Loan rate cuts are having a positive impact on a wider customer segment. I would look forward to some overall confidence-boosting measures in the Feb 1 Budget, which will put more money in people’s hands, and that itself will bring back home sales to pre-DeMo levels. Under that, specifically, some cut in the tax rates for middle-income groups will be the most awaited measure.
  • The context of the Feb 1 Budget is against a 3-year gradual slow-down of Residential Real Estate Sales, and a crippling slow-down since Nov 9, 2016. To address the immediate situation created out of DeMo, there has to be some message from the national leadership encouraging home-buyers to go ahead and not postpone their decision – either from Finance Minister or Minister of Urban Housing. This will be a clear GDP-enhancing measure. For the long-term, cuts in income tax rate, and possibly in stamp duty for home registration could be measures that may help the Real Estate industry in getting a jump-start.

Sunil Mishra,
Chief Business Officer, PropTiger

The introduction of the Real Estate Regulatory Act as well as demonetization last year has been extremely disruptive for the real estate sector. The government has already expressed its vision of housing for all by 2022. If this is to become a reality, they will need to provide tremendous amount of stimulus for the real estate sector so that homes become more affordable and get produced much faster to meet the objectives. Steps that can be taken by the government include –
1. Widen the scope of the tax free status for projects which currently require 90% of the project potential to be developed within 3 years. This is a tremendous deterrent for large-scale projects as it is virtually impossible to complete these projects within 3 years.

2. To encourage the supply of rental housing and increase the standard deduction available for rental income.

3. To encourage people to acquire the existing inventory available in the market, allow for an increased deduction of an extra 100% of the interest payment made by the flat purchases to the financial institutions for a 5 year period. This will drive down the effective rate of interest for the flat purchasers. The ensuing increase in real estate activity generating income to the government from other sources, will more than compensate for the reduction in income on account of the increased deduction. In addition I do hope that the government takes steps in the budget to curb the regeneration of Black Money in the economy. A simple measure for this could be limiting total cash payments to say 1% of the total expenses of a company in each month. This will force all payments for all businesses to be made by cheque.

Rohit Gera,
MD, Gera Developments and VP, CREDAI – Pune Metro

“In recent years, for individual home buyers, prices have continued to increase by approximately 7-10% per year. From our perspective, we would like to see the government increase the income tax benefits to this group of home buyers.

When we consider the affordable housing segment, we would be delighted to see income tax benefits that can be extended to corporates when they expand through new construction.

Given the introduction of the Goods & Services Tax (GST), homes will also now attract a tariff. From our perspective, it would be beneficial if home buyers can come under the lowest possible slab of the GST, thereby enabling greater affordability for potential home buyers.

The “Housing for All” initiative needs strong private sector support to achieve its intended objectives, which I am certainly aligned with.”

PNC Menon – Founder Chairman, Sobha Group

The government recently announced that interest rates of 3% would be applicable on loans of up to Rs. 12 lakh and 4% on loans of up to Rs 9 lakh, under the Pradhan Mantri Awas Yojana (PMAY). Now, two new income categories can avail higher loans with interest subsidies. The Budget should give more clarity on the actual definition of beneficiaries who can avail of these benefits. Can a first-time home buyer looking at an affordable project get additional income tax incentives for at least five years? The Budget should throw more light on this.

The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of Rs. 2 lakh is insignificant, given the ticket sizes in cities like Mumbai where most houses are priced at Rs. 1 crore and above. Also, tax concessions on house insurance premiums could be introduced to encourage end-users to insure their homes.

While the goods and services tax (GST) tax structure has been announced, the real estate industry is waiting with bated breath to see which tax rate is applied to the real estate and construction industry. Clarification would also be needed on the abatement scheme, and whether credit for input tax would be allowed if the composition scheme has been availed by developers. The government, with it mantra of maximum governance, should look at easing the tax reporting structures in the upcoming Budget.

Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a deduction. This deduction can be substantial in cases where the salary and its HRA component are higher. However, self-employed persons and those who draw lump sum pays without an HRA component can only claim a maximum deduction of Rs 2,000 a month under Section 80GG. The Budget can and should address this anomaly.

Anuj Puri, Chairman & Country Head, JLL India

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