Union Budget 2019: Real estate sector hopes for industry status, further push to REIT agenda
With the transformation in the way business is conducted under the reformative Real Estate (Regulation and Development) Act, 2016 (RERA) regime, it is time to recognise the role of the real estate sector as a full-fledged industry.
The earlier housing initiatives of the government should get a boost with necessary reforms
Prime Minister’s Mission of Housing for All by 2022 will enter its significant second phase
The government should allow tax benefits for investments in Real Estate Investment Trusts (REITS), say industry players
The real estate sector is hoping the Narendra Modi government's second term in office will lead to the fulfilment of promises made given that some programs were announced for the sector. Industry players weigh in:
Rajesh Jaggi, Everstone Group
This is the first full Budget after the National Democratic Alliance’s (NDA’s) resounding victory for a second term and we are looking forward to the Government’s initiatives to boost the consumption which in turn will help the economy to grow, benefiting all sectors. As an industry, we are looking forward to some rationalisation of taxation. The input credit norms for warehouse construction and operations needs to be relooked at. Presently, there is an accumulation of input tax that leads to a high incidence of tax on warehousing services. With digitisation coming to the fore in almost every sector, warehousing and logistics is gearing up for an in-depth adoption of digital technologies. We hope the budget incentivises adoption of various technologies in the logistics sector, this would help us to keep pace with the international standards of packing, material handling, WMS, etc. and help drastically improve the efficiency and effectiveness of the sector as a whole.
Amit Gossain, MD, KONE India and Chairman, Real Estate & Building Technology, CII
The earlier housing initiatives of the government should get a boost with necessary reforms, thus enhancing the overall growth of the economy. There are many positives anticipated in the infrastructure sector; the introduction of tax-free bonds to boost investment, streamlining of the land acquisition process and increase capital outlay towards Infrastructure Sector by 12-18 percent, to name a few.
Prime Minister’s Mission of Housing for All by 2022 will enter its significant second phase, which is bound to be an extremely exciting time for all industry stakeholders. The low-interest rate loans, the special interest rate for Women, Tax exemptions with specific investments, rollover capital gains, capital outlay under PMAY and other such schemes will support the Infrastructure growth. However, the building of such large number of housing, much of which is based on tenders should ensure houses and their related fixtures such as fittings, elevators and building material is of high quality with high longevity and safety factors.
The Budget is also expected to provide direction on the long-term projects being undertaken under the Smart Cities Mission, and Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programme. To continue the momentum for Indian Realty and Project the next wave of the Economic Growth, the government should allow tax benefits for investments in Real Estate Investment Trusts (REITs).
Shishir Baijal, Chairman & Managing Director, Knight Frank India, international property consultant
The Central Bank and government have taken meaningful measures to alleviate the stress in the real estate sector by executing three successive repo rate cuts and rationalising the Goods and Services Tax (GST) regime. Now is the time to look further and focus on more specific issues. Following are a series of expectations from the first Union Budget of the Modi government’s second stint at the Centre:
‘Industry status’ to real estate: With the transformation in the way business is conducted under the reformative Real Estate (Regulation and Development) Act, 2016 (RERA) regime, it is time to recognise the role of the real estate sector as a full-fledged industry.
Deduction on the principal repayment of housing loans (Section 80 C): At present, Section 80 C of the Income Tax Act does not provide for a focussed benefit on housing. Taxpayers have numerous investment alternatives to choose from and the lack of tax benefit on the principal amount of home loans makes them put their home purchase decisions on hold, thus impacting sales. A separate annual deduction of Rs 150,000 for principal repayment will provide the much-needed fillip to opt for home loans and inadvertently push real estate sales.
Real Estate Investment Trust (REIT): While the government has taken measures to provide fiscal incentives in earlier budgets, we have seen only one REIT listing so far. The government can further push the REIT agenda by reducing the timelines of investment from three years to one year for long-term capital gains taxation; thereby ensuring larger retail investor participation.
Affordable housing: The government can enhance the eligibility criteria for the Credit Linked Subsidy Scheme (CLSS) and GST rate benefits to help a larger section of consumers in urban centres. For instance, the annual household income criteria across all consumer categories should be enhanced such that it is in sync with house prices in major urban markets like Mumbai and Delhi.
Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Limited
India needs a stable political and investment climate supported by growth-oriented Union Budget 2019. The realty sector needs strong demand fundamentals through economic activities, including continued infrastructure development, and easy availability of capital. There is a strong demand for affordable housing and office space despite sunset clause of IT SEZ policy of March 2020. This, along with GST and e-commerce driving warehousing and logistics demand are expected to open up significant opportunities for the developers and investors. The upsurge in domestic and overseas tourism too stands as great opportunities for the sector. The government needs to implement specific initiatives to complement and accelerate growth through policy changes. Overall, we are confident that this Budget would provide the right traction to the real estate industry and prepare it to lead at the global front.
Surendra Hiranandani, Founder & Director, House of Hiranandani
We hope for measures that will enhance the overall economy instead of specific sectors. Also, the announcements must be backed by concrete plans to ensure that the benefits are percolated to the consumers. From a real estate standpoint, the last year was largely spent getting acclimatised to the new policies which ushered better transparency and accountability in the sector. The real estate sector is the most highly taxed with the combination of high direct and indirect taxes, stamp duties and levies for development approvals. These extraordinarily high taxes coupled with high interest rates have been crippling growth. To bring back growth in the sector which is so vital to any developing economy, we expect the government to impart industry status to the sector which would enable developers to cut capital costs and pass on the benefits to consumers. The government should speed up its measures for infrastructure development which will ensure cheaper land for housing and push affordability.
There is significant expectation to cut GST rates to a single, standard rate, and not have multiple rates or taxes. The abolition of stamp duty or its incorporation under GST will be an added advantage. Relaxation in income tax slabs will also be welcomed as it will allow salaried class to make further investments in real estate. The government must look at increasing the deduction limit under section 80C from the current Rs 1.5 lakh. The need of the hour is to lower interest rates which will help resolve the existing liquidity crisis and boost housing demand.
Kamal Khetan, Chairman and Managing Director, Sunteck Realty
With the Narendra Modi government back in power and Finance Minister Nirmala Sitaraman at the helm of Finance Ministry, we expect the wheels of reforms and impetus to the real estate sector to further accelerate growth of the GDP. We anticipate Modi’s vision of Housing for All by 2022 to be on the forefront in this year’s Budget, as easing pain of the real estate sector will fix many ancillary problems marring the economy currently. Generating employment among the 106 industries directly or indirectly linked to the sector, boosting the slow demand cycle are some of the immediate benefit that the economy will reap from the reforms.
Starting with the government’s focus on affordable housing, the government should revisit the nomenclature defining this segment in order to accommodate more and more people within the metropolitan regions. To make affordable housing a viable proposition, the government has to consider relaxing the unit size or the price bracket of the affordable segment. This will help bring people closer to the place of their work and within the realms of city infrastructure.
Lastly, in the previous avatar, the government has regularized the sector by introducing RERA, we expect the stable government to provide the industry status to the sector which will bring the due focus to the sector from the investor community.
Ashish R Puravankara, Managing Director, Puravankara Ltd
On the back of a series of attractive incentives proposed in the last interim Union Budget, the sector believes all the initiatives announced by the government will continue, along with more new incentives to further strengthen the realty ecosystem in the country. We hope in this budget, the policies are inclusive of provisions that provide a conducive environment for the real estate. Some of the key expectations of the industry from the budget are a roadmap to execute the ‘infrastructure status’ afforded to the industry in the previous budgets without restricting it to affordable housing projects alone. There should be no cap for loss from house property—the limit set-off for loss from house property of two lakh should be removed at least for rented houses. Input Tax Credit (ITC) should be reinstated and extended it to the commercial segment against GST payable on rent of same project or any other building rent. Further, extension should be given for availing benefits falling under Section 8O-IBA for Affordable Housing Scheme/Housing For All. Differential GST rate for apartment value for more than Rs.7000 per sq. ft.; abolition of GST payable by the landowner in a Joint Development agreement; abolition of tax on the unsold inventory; framing a National Rental Housing Policy in order to meet the target of Housing for all; and redress liquidity crunch in the sector by pumping in more capital, which will also provide an impetus to the country’s economic growth.
Ashok Mohanani, Chairman, EKTA World
The Budget majorly needs to discuss the key issue of high unemployment rate, financial sector challenges like the NBFCs crisis and agrarian crisis as this has cumulative pressure on people and the economy. With the looming slowdown in the economy, the government is searching for various ways to give a fresh impetus-for instance,they are now open to External Commercial Borrowings in real estate. This will see significant funds flow into our industry. This will help us tide over the current NBFC slow down as well. Schemes like 80 I B, permitting ITC in GST, removing deemed rent on unsold inventory and removing the 45-lac cap for affordable housing at least in Metros will stimulate growth. According to the previous budget the government decided to emphasize more on enhancing overall infrastructure, connectivity, and transportation which reflects the government’s proclivity towards providing a sustainable developed environment. Also, there is certainly a need to relook at the tax structure. There must be reconsideration to reduce the percentage for the 5 lakhs to 10 lakh slabs as that will reduce burden and increase disposable income which will aid liquidity.
Parth Mehta, Managing Director, Paradigm Realty
The truth of the realty sector is that it is impacted by three facts—increasing input cost due to the abolishment of ITC and exorbitant development premiums, excruciating liquidity crisis due to NBFC defaults, rising banking sector NPAs and piling up of unsold inventory due to weak consumer sentiment on the back of high unemployment. It is one of the worst phases for real estate as an asset class underperforming by leaps and bounds vis-à-vis others. Hence, the wish list of the sector is long which was ignored in the interim Budget due to the government's focus on a populist Budget ahead of the election. The NBFC fiasco and overall credit crunch of the banking system had a domino effect on the viability of real estate with access to construction finance largely paused, and exorbitant rates of borrowing making project viabilities questionable.
Arun MN, Founder & Managing Director, Casagrand Builder
The swift introduction of reforms over the past five years to reinvigorate the flagging real estate sector, have been heartening, viz., the Real Estate (Regulation and Development) Act, 2016 (RERA), the regularization of Goods and Services Tax (GST) in the sector & its subsequent reduction, the Benami Transactions (Prohibition) Act and the Insolvency and Bankruptcy Code (IBC), PMAY have enhanced transparency of the sector. Over the past few months, well-directed measures such as extending the usage of capital gains and stronger push for affordable housing, revision in GST benefit have been launched. The upcoming Budget, in my view, shall place a high focus on the real estate sector. In the upcoming Budget, we wish for the introduction of methods to address the structural issues in the sector, especially rising input costs post the abolishment of Input Tax Credit (ITC), the engulfing liquidity crisis emanating from the NBFCs and the rising NPAs in banking sector. Broadening the scope of affordable housing by raising the eligibility criteria for the Credit Linked Subsidy Scheme (CLSS), GST sops and an overall larger capital outlay for the PMAY could be initiated. And also, it would be beneficial if the measures could be introduced to provide a more enabling environment for REITs, revising the deduction limit under Section 80C as well as introduce efficient methods to finance the funding of land, for projects, especially those with a small ticket size per unit.
Suresh Kumar A, Chief Financial Officer, Adarsh Group
The last interim Budget bought cheers to the Indian real estate industry with a series of favourable initiatives along with new attractive incentives for homebuyers, that has given a strong push to the growth prospects of the sector. We hope that in the upcoming budget as well, the policies will be inclusive of provisions that will help in further strengthening the realty ecosystem in the country. In a nutshell, a few key expectations from the industry from the upcoming budget are: to remove the ceiling in deduction available U/s 24 of the Income Tax Act , to the Individual towards payment of Interest on Housing Loans( Self Occupied Property) from existing maximum ceiling of Rs 2,00,000, increase in the limit of Deduction U/s 80C of the Income Tax Act., in respect of repayment of housing loan-at present the same is part of overall limit of Rs 1,50,000 and it is better to have separate deduction towards repayment of housing loan principal. Nationalised banks must fund all the affordable housing projects registered under PMAY scheme compulsorily at a lower rate; reinstate Input Tax Credit (ITC) and further extend it to the commercial segment against GST payable on rent of the same project or any other building rent; and abolition of tax on unsold inventory.
Rajat Rastogi, Executive Director, Runwal Group
During its first term, the Narendra Modi government had introduced major reforms such as demonetisation, RERA, GST, Benami Transactions (Prohibition) Act, etc in order to support the real estate sector. The expectations are quite high this time, too, as the government will present its first budget after winning with a thumping majority in the recently concluded Lok Sabha elections. In the past few months, the NBFC crisis has spread its wings in almost all the sectors including real estate. The government needs to take fiscal measures to address the deteriorating NBFC liquidity crisis. If the crisis is not dealt with soon, it will impact the recovery of the real estate sector.
A reform that has been long due is granting the industry status to the real estate sector for a proper overhaul. This move will complement the government’s recent initiatives to bring structure to the industry. Although the GST for under construction flats and affordable housing has been reduced to 5% and 1% respectively; the input tax credit is hitting the margins of the developers eventually resulting into higher prices for the home buyers. This needs to be addressed soon by the government. The government should also focus on infrastructure development as it will drive real estate demand. Increasing the allocated expenditure for infra projects will eventually boost the residential and commercial markets and promote the government's plan to create smart cities. We hope for a Budget that is conducive and propels the growth of the economy, boosts the real estate sector, benefits the home buyers and provides relief to the developer community.
Navin Makhija, Managing Director, The Wadhwa Group
We are hoping that the upcoming Budget more tax sops and higher relief are provided on home loan rates. This will help woo homebuyers and investors to buy property. This can help the sector recover from its liquidity woes to a large extent. Timely start and completion of projects have always been a concern. A single window clearance will help to swiftly execute projects making it a win-win situation for developers and homebuyers. While incentives have been provided to boost the affordable housing segment, there needs to be a reduction in the cost of land, development premiums to incentivise developers to build budget homes. Additionally, interest rates on housing loans should be reduced to benefit a broader segment of homebuyers and increase demand. The government also needs to allocate more funds for Pradhan Mantri Awas Yojana (PMAY) which will help them achieve the target of ‘Housing for All by 2022’.
Gautam Thapar, CEO, Thapar Builders
It is expected that the government will bring stimulus to boost the real estate/construction industry in the forthcoming Budget. To further promote the sector incentives should be given to buyers to buy second home which will promote the real estate segment in the long run. We expect the applicable GST on the real estate to come down and also interest rate on home loans. As proposed, the government should remove income tax from rental housing ensuring builders to lease unsold inventory.
Anand Moorthy, Founder & CEO, Props AMC, a SaaS-based Real Estate Data & Portfolio Management platform:
We as portfolio managers of the real estate owners don’t expect much to benefit property owners in this Budget. From an industry standpoint view, GST has been already reduced from 12 percent to 5 percent pre-election and home loan rates are tamed at 8-9 percent for actual primary buyers to come back to the market. Also, the capital gains benefits reduction to 2 years from 3 years has benefitted the sellers in the market. Any real estate buyer or investor has to pay 12-14 percent as taxes to own properties in India.
Ramji Subramaniam, Managing Director, Sowparnika Projects
The Budget of 2019 under Modi 2.0 should offer a carefully assessed approach to rationalise input costs that can benefit both the real estate developer as well as the homebuyer. At a time when the NBFC crisis seems to be unabated, the government needs to re-examine or introduce efficient methods to finance land procurement, by developers, which currently is misaligned. Additionally, the government must formulate methods to reduce the cost borne by the developers during the preconstruction phase, especially with land procurement and during the pre-RERA phase, so as to increase the cost feasibility of an affordable housing project.
Tushad Dubash, Director, Duville Estates
Rapid urbanisation has meant that real estate developers are being pushed to the peripheries of main cities, be it the NCR, MMR or the suburban areas in Pune and other cities. The construction costs are, however, continually going up. And this is moving at an alarming rate vis-à-vis the prices per square feet being charged by the developers which are under continuous pressure. Making the transition from an unorganised sector to receiving industry status will allow for borrowings and the raising of funds at lower rates thereby having a direct impact on the overall project costs and profitability. Well-capitalized developers will continue to complete the projects on time but the damage done through the years by unscrupulous developers continually delaying projects and not handing them over on time is something that needs to be resolved at the earliest.
From the government’s perspective, the Union Budget must focus on quick revival of the sluggish real estate sector that contributes over 7% to the GDP. Being capital and labor intensive, the sector can help revive the economic growth as a whole since over a hundred industries are linked to realty—from construction material to electric equipment to bath and kitchen fittings, furnishing, etc. The real estate sector is highly taxed with the combination of high direct and indirect taxes, stamp duties and levies for development approvals. These have essentially curtailed growth. Currently, real estate is taxed at 5 percent GST plus 7 percent stamp duty. It would be helpful to cut GST to a single standard rate and not have multiple rates or taxes. In Metros and Tier 1 cities, the apportionment of costs is significantly higher as far as land costs are concerned. Taking cognizance of the reality on the ground is important to have the one-third abatement changed.
Gururaj Bhat, CFO, Karle Group
In the upcoming Budget, we would like to see a reduction of GST on cement from the present 28 percent. In the absence of the government not allowing the builder to take input credit of GST paid on steel/ cement, the developer is forced to absorb this to their cost, which ultimately will be borne by the home buyer. Any reduction of GST on cement will certainly boost the residential market. An extension of concessions towards housing loans between Rs 50 lakhs to Rs 1 crore bracket would also boost sales. Setting up of more SEZs units will help in narrowing down the current deficit which is getting enlarged on YOY basis as the units in SEZ are generating more employment opportunities and are major contributors for foreign exchange to the country. With all such benefits, if the sunset clause ends by March 2020, many SEZs which are under construction and in the pipeline will become less attractive and may impact the employment generation and foreign exchange earnings and economic growth may be halted. In view of this, the extension of tax benefits for SEZ units to be established in SEZ by five more years will definitely accelerate the economic growth of the country.
Nesara BS, Executive Director, Concorde Group
The real estate sector is at the cusp of a transformation in India; the Government has been swift in introducing and implementing striking measures that have enhanced transparency within the industry. The Real Estate (Regulation and Development) Act, Goods and Services Tax (GST), Insolvency and Bankruptcy Code as well as the Benami Transactions (Prohibition) Act are transformational. At the outset, the undertones from the Government indicate that real estate shall be one of the key vehicles to kick start the flagging economic growth. The overwhelming mandate in the General Elections would act as a catalyst to ramp up the Pradhan Mantri Awaas Yojana (PMAY), so as to ensure Housing for All by 2022. In this regards, the Government should enhance the eligibility criteria for the benefits under the scheme, so as to benefit the homebuyers. The unit size to price ratio of affordable housing too needs to be re-examined, especially across the Tier-1 cities. Imminent headwinds, emanating from the rising risks of NPAs and the NBFC crisis are impacting liquidity; margins are dropping due to increased input costs; these are some of the systemic risks that we expect the government to address. The introduction of REITs has been a welcome move; however, the instrument needs to be proliferated more widely to unleash the latent value in the sector. To perk up demand for real estate even further, the government may provide focused benefit on housing through the Section 80C of the Income Tax Act.
Radhakrishna Garapati, Managing Director, RKEC Projects
Augmentation of infrastructure has been one of the key priorities of the government. With a stable government at the Centre again, budgetary allocations towards key infrastructure segments are expected to increase as compared to last year. Tendering activities across all the infra segments are expected to pick-up. Considering the government's need to maintaining fiscal discipline, some key measures are expected regarding funding of projects under major sectors like Roads, Ports, Buildings and Urban development. Pick-up in execution of major projects is needed to turn-around the investment cycle of India.
J C Sharma, Vice Chairman and Managing Director, SOBHA Limited
With the upcoming Union Budget 2019-20, we hope that the Government will continue to address the concerns of the real estate sector and give much-needed fillip to the housing market. One of the areas that require immediate attention of the government is increasing the threshold value of affordable housing under the Pradhan Mantri Awas Yojana (PMAY) scheme from the current Rs 45 lakh to 75 lakh. In markets such as Bengaluru, the lands prices are high making it unrealistic for the developers to offer homes at a price point of Rs 45 lakh. We recommend that the carpet area threshold for affordable housing be increased from the current 60 sq. mt. to 90 sq. mt. in metros and from 90 sq. mt. to 120 sq. mt. in non-metro cities, in line with the consumption trends. By redefining the threshold value and area of homes under affordable housing, the Government will bring more number of projects under the purview of ‘affordable housing’. This will enable a wider segment of the market to avail the income tax benefits.
Equally important is to clear the confusion on GST rate for Joint Development Agreement (JDA) or sale of development rights, especially for commercial projects. While a specific exemption has been granted for transfer of development rights in a residential JDA, commercial developments have not been covered under the said exemption. This increases the taxes for commercial projects with GST being levied on any express or implied transfer of development rights vis-à-vis residential development. In case of transfer of development rights under joint development agreements, GST levied on transfer of development rights by the landowner to developer makes it an indirect tax and should not fall under GST. Therefore, this requires reconsideration of the government.
Sarojini Ahuja, VP, Sales & Marketing, Transcon Triumph
During its last tenure, the government had swiftly pushed several reforms which will eventually prove to be positive for the economy in the long run. The upcoming Budget needs to be more attractive to foreign investors as it will be an ultimate platform to announce further incentives which will attract more foreign investments into the sector. Considering the rupee's recent weak performance, this budget is an ideal time for reforms targeted at foreign inflows into India. We expect the government to reduce the tax on interest income which will help accelerate capital inflows to India. Liberalizing foreign investment norms in real estate is another widely expected move. Besides a few shortcomings, REITs as an investment tool is an asset for the entire real estate sector in India. Easing the taxation norms for REITs will benefit the entire sector by the large bandwidth of investors.
Srinivasan Gopalan, CEO, Ozone Group
Last year for the real estate sector was a combination of ups and downs with commercial, warehousing and retail seeing a spike while the residential space witnessed plateaued growth with affordable housing segment showing a slight northward movement. Some key factors that have contributed to this phenomenon are issues of liquidity, high input costs, inventory and stagnating prices. The government should take concrete action in the upcoming Budget to address the predicament the sector has been put into with the NBFC liquidity crisis. One of the immediate steps would be to grant industry status to the Real Estate sector so that realtors can borrow funds from other sources as well, at lower industry rates. Incentives to promote FDI would add further impetus. There is also an urgent need for single window clearances. The Government should also consider a reduction in GST, especially for under construction properties as it would benefit the end customer and enhance sales. A relaxation in the existing IT slabs would also enhance the purchasing power of home buying aspirants.
Anandeep K Chadha, Chief Financial Controller, Assetz Property Group
The real estate sector has been facing significant liquidity issues and expects the government to ease ECB norms, granting infrastructure status to this sector for easy bank funding which will further help in providing the much-needed fillip to the housing segment. We are also looking forward to the rationalisation of GST in case of under construction properties towards inputs used in construction in order to optimize the product pricing and enable housing for all that was initiated by the government, to become a reality. In addition, the deductions under Section 80C, which also covers principal repayment on home loan deduction along with other things should be increased from the current Rs 1.5 lakh. In fact, a separate deduction limit should be provided for principal repayment as a majority of the Section 80C limit is exhausted by other investments and expenses such as provident fund and tuition fees. Also, the deduction limit of Rs 2 lakh on interest on a home loan for a self-occupied house should be increased further.
Pranay Goyal, Managing Director, Wedevelopment
The housing sector is one of the largest contributors to the nation’s GDP. The government has taken several measures to address the housing needs of millions by focusing on the ‘Housing for All by 2022’ mission, through movements like RERA, cut in GST, etc. The burden has shifted to the development side. Due to the stagnation in prices, the margins have further tightened, increasing the number of stuck projects. In the upcoming Budget, we hope the government takes more development-friendly initiatives for the betterment of the market sentiment. Along with the input tax credit, lucrative tax incentives should be passed on towards the development side, which will bring relief across the spectrum of the development cycle and not just sales. This will ultimately impact the very concept of affordable housing. We believe that the Self-Redevelopment sector under housing is a huge untapped opportunity for Bank & FIs, and the government will continue supporting this revolutionary concept.
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