It’s that time of the year when every sector of the country gets full of hopes and aspiration. Yes! It’s almost time for the Interim Budget 2019. On 1st February, the government will present the Interim Budget 2019 in the Parliament. Like every other sector, Real Estate sector has its own expectations. The sector is facing many challenges due to stagnant demand, which got further intense post the NBFC crisis. As the industry is working towards bringing around the demand, a little push from the Union Budget, which is indeed the burning requirement, will lend a helping hand to the realty estate sector.
A cash crisis is expected by the property advisors in order to endure in the real estate sector. In the pre-Budget recommendation, FICCI suggested that there should be an increase in income tax deduction limit against loans for construction of self-occupied property for individuals. A lot is being expected by the industry people from the Union Budget this year as it’s high time to address various challenges like project approvals, funding and liquidity, taxes, and rental housing faced by the sector.
The developers, on the other front, are very optimistic and are expecting a lot from the last budget before the general elections. Ashish Sarin, Director and CEO, AlphaCorp thinks pushing the tax exemption benefits will boost sales. He says, “The real estate sector is expected to witness a boost in budget 2019. Keeping the trend of promoting affordable housing alive this year, the major demand in the budget is an extension of income tax exemption applicable to current affordable housing units. Another prominent expectation from the government will be a single window clearance system. Reduction of GST on under construction projects up to 5% from 12% will be a significant demand in the upcoming budget”.
Though Single Window Clarence is one of the long-pending demand from the real estate fraternity, of late and particularly after the GST implementation, the reduction in GST rates to 5% is also one of the common demand. Currently, applicable GST rate on under-construction projects is 12%. Echoing similar views, Sumit Berry, Managing Director, BDI Group, says, “2019 will be the year of growth and development for Indian real estate. We expect the budget 2019 will be in favour of the sector. The additional income tax deduction will encourage more homebuyers to invest in the affordable housing segment. Bringing stamp duty within the purview of GST and other tax benefits to the affordable centric realty market will turn government’s affordable housing dream into reality.”
Certainly, a little boost to the real estate and infrastructure sector can have a ripple effect on the overall economy. In the words of Khushru Jijina, MD, Piramal Capital & Housing Finance, “Indian Real Estate accounts for 6% of the GDP employing close to 18% of the workforce and supporting over 350 industries such as cement, paint, steel, etc.” However, the sector is currently reeling under tremendous financial crisis. The recent NBFC crisis further deepened the situation. Khushru Jijina aptly describes the situation and puts forward his expectations from the budget. He says, ” The credit crisis within NBFCs delivered a major blow to this sector significantly paring its access to funds. The Government needs to take aggressive measures, albeit temporary, to mitigate stress in FY20. To stimulate housing demand in FY20, the budget should aim at policies to reintroduce income tax deduction on principal and interest on a second home loan. In addition, Income tax deduction limit on interest paid should be hiked to Rs 5 lakhs especially in Tier 1 cities. Similarly, IT deduction allowed on principal paid should be increased. The policies should also be aimed at increasing ease of doing business for developers by rationalizing tax structure with a uniform GST preferably lower than 12% and merging stamp duty into GST and stimulus package for major developers should be rolled out and delivered through major NBFCs.”
It’s not that the government has practised a partial attitude towards the real estate sector. In the last 4 years of its governance at the centre, Narendra Modi and his team have brought in many reformatory measures to streamline the sector, RERA, GST and ease in FDI are some of them. However, to get the ball rolling on the ground, much still needs to be done. As R K Arora, Chairman, Supertech explains, ” The government has been focussing much on the sector over the past few years to ensure that the target of housing for all by 2022, India’s 75th anniversary as an independent country. However, much needs to be done. While GST reduced the multiple taxes and complexities in real estate transactions, the stamp duty remains. This must be removed as is the case for most other industries. Another request we have is that the real estate sector be given industry status. The growth of the real estate sector is one that has a ripple effect on many other ancillary industries. The sector was one of the worst hit after demonetisation and has only just started to recover. The change in status makes it easier for developers to raise funds at lower rates. The cost of capital is a major problem at this time and a reduced cost of capital would impact overall project costs and costs to buyers. We also hope that the government reduce the GST rate applicable to housing as that would be the ideal boost that is much needed by the industry.”
Anil Saraf, CMD, ASF Group, expresses similar expectations from the Union Budget and says, “The industry is hoping that its concerns relating to rationalization of taxes and infusion of liquidity in the markets shall be duly addressed by the Government, particularly since slowdown in demand across segments has hugely impacted the real estate sector. The reduction in the tax rate would help millions of home buyers and the real estate industry. It will also benefit the entire value chain dependent on the construction sector, which is a major contributor to India’s infrastructural growth and the 2nd largest contributor to GDP.”
The government has also extended the benefits of CLSS to MIG segments in the last quarter. This was viewed as one of the major push for the sector. Though, as a policy, this is a welcome step, however, developers plead for faster execution of this policy so that it may encourage the buyers. Sanjay Jain, Group MD, Siddha Group explains, “With the Union Budget 2018 announcement right around the corner, our key expectations are for better budget allocation and faster processing on the ground for the CLSS scheme will be appreciated as that will benefit both customers and realtors. GST levied on under construction properties can be expected to be reduced to encourage buyers. Developers are hoping for the grant of an industry status which will boost activity and catalyze institutional funding. If limits can be raised for NBFC for financing projects, it will be easier for developers in terms of funding. Multiple interests on subsidy scheme through the Pradhan Mantri Awas Yojana for EWS, LIG and MIG groups have been announced in the past years. This will definitely increase the demand for housing in the market. But we further hope that interest rates on home loans will be addressed to make housing affordable for everyone. Single window clearance also needs to be taken into consideration for faster implementation and execution of projects.”
Talking about the co-working space, the segment has witnessed tremendous growth in the past few quarters. It has further boosted the overall commercial real estate market and has added an all new scope to the retail space developers. Though, they too have certain expectations from the Modi-led government. Representing their views, Rishi Das, Co-founder and Chairman, IndiQube, says, “The government’s initiative to bring in GST has been beneficial for the sector as co-working is a service business and a substantial amount of money is spent on the interiors, and GST has simplified the taxation process to a different level. Having said that, enabling the coworking players to claim the Input Tax credit on work contract and construction supplies would curb the outflow of cash to a very large extent. This, in turn, will significantly aid the growth of the coworking business wherein, the input tax credit if extended to the developers is also passed on to co-working players who lease out space, will reduce the overall cost. Also, the current co-working industry is being affected by TDS. The tax is being doubly levied as it is deducted from the co-working player when the property is leased from builders as well as when it is given in rent to the clients. So, it becomes important to support the players and leverage the co-working sector by bringing down the TDS, considering that co-working is a business where the operator is not owning the property. I believe, here the tax should be applicable only on the value addition and not on the entire property.”
The Narendra Modi-led NDA government will present its interim budget on February 1, 2019. And as per the tradition, they are expected to present a populist budget. However, going by the present government’s track record, they may pull up some hard reformatory measures as well. And if that happens, it will actually benefit the business environment and will further carry the benefits of last year’s budget announcements. It will be beneficial for the real estate sector as well. Developers would like to see some solutions to their long pending demand for easing out the funding crisis. Infrastructure status to the complete sector may be a blessing in disguise. What happens and what may not, only time will tell. As of now, the entire sector is keeping its fingers crossed and hoping some takeaways from the upcoming budget.