What will the Budget bring?

It’s getting close to that time of the year when every industry waits with baited breath –  the Union Budget. Expectations are always high and getting all them satisfied is not really an easy job to work at. According to Santosh Naik, MD, Disha Direct, a real estate marketing company, “Thanks to increasing costs of major raw materials required for construction like cement and iron, prices have increased by almost 30% in the last year.

Housing loan interests have also increased substantially in the last two years which has affected both serious home buyers as well as developers – slowing down sales. Taxation alone is around 35 – 40%. When you put together VAT, Service Tax, Stamp Duty & Registration, Excise, Sales Tax and others, prices have now become unaffordable. Land prices are on the rise and this forms the major cost incurred by real estate developers. With all of these factors in play, customers are not able to find their dream home in the firm budget. Developers too are affected by these factors. What we expect is a rationalization of taxation, implementation of a Real Estate Regulatory Body, low excise duty on cement & iron along with reduction in housing finance rates.”

Here are some of the expectations from the realty sector from several prominent names in the industry.

P Ravindra Pai, Managing Director, Century Real Estate Holdings Pvt. Ltd

“My top 3 expectations from the Union Budget 2012 are as follows:

Grant Industry status to real estate since it is a major driver for economic growth and together with the associated industries, generates significant jobs.
Subsidy for home loans below Rs 25 lakh to spur demand
Relaxation of norms for FDI investment in real estate sector to give a boost to investments since it is a capital intensive industry”

While these three ideas are relatively the same desires across the realty spectrum, here is a look at some others. 

Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India

Commercial Office Real Estate : The implementation of the revised DTC will have strong implications on SEZs. The industry requires clarity on the issues that may emerge, and how businesses would be promoted in Special Economic Zones.

Taking cues from the healthy growth of IT/ITES in Tier I cities and its effect on the growth of employment, the Government should actively roll out an incentive-based IT policy (such as STPI) for Tier 2 and Tier 3 towns as well Residential Real Estate
Last year, a 1% interest rate subsidy was provided for loans towards affordable housing. The scope of this subsidy should be amplified and broadened to include a wider price band of budget housing to benefit home buyers, especially in lower income groups.

More funds should be allocated to the Rajiv Awas Yojana (RAY) for urban housing targeted at the EWS and the LIG sections Enact provisions for Special Residential Zones (SRZs) to incentivise the growth of housing stock at targeted locations
Policy  Grant industry status to real estate, since the sector is a major driver for economic growth and generates countless jobs across its various verticals and associated industries

Relax norms for repatriation of FDI in real estate. The market environment needs to be rendered more investment-friendly

Enact legislation on REITs to provide exit opportunities to real estate investors
Bring out strong and convincing evidence of intention to implement the proposed real estate regulator in 2012, and provide single-window clearance for real estate development projects

Sandip Mukherjee, Executive Director – Tax & Regulatory Services, PwC India

Below are few observations and recommendations that require the Government’s attention.  
Observation: The declining trend of FDI investments witnessed by the sector must be looked as an eye-opener.  
Recommendation: The Government should consider relaxing the minimum lock-in norms and make it applicable only to the original FDI.  
Observation: This sector is today facing tremendous shortage of finance as a result of which prices in the sector are sky-rocketing.
Recommendation: Opening of External Commercial Borrowing in this sector would help in reducing cost of funds as well as in controlling the property prices.  
Other recommendations are:  
From an income tax perspective, steps such as 1% interest subsidy should be extended with an increase in the price band from existing INR 20 lakh.
De-linking the exemption on repayment of principal amount from section 80C needs to be explored. Also, increase in the limit for interest on home loan deduction is long overdue and will certainly act as a balm to the ever increasing interest rates.
Additionally reduction in taxes such as VAT, Service Tax, etc. would possibly act as a breather for home buyers to acquire own property.

T S Sateesh – Managing Director, Hoysala Projects Pvt Ltd

Loans for builders: The housing sector is a huge source of employment in the country, yet it has not been given priority status. This is something that the industry has been hankering after for years now. Once this happens, builders will be able to secure loans from banks at a lesser rate. Lending to the real estate sector will be easier for finance organizations. There is also a need for interest rates to come down by at least 2 basis points over the next two quarters at least. The rates should stand at 9% compared to the present 11%.

Stamp duty and services

There has been talking going on for a while now on the service tax being reduced by the government. However, this has not yet happened. Service tax is also something that varies with every state. It has to be uniform and should not be the current additional burden that it is. These advantages will finally go down to the consumers themselves.

Thoughts on how much will be implemented

Currently the demand for real estate is pretty high and it has to be handled the right way. If that is to happen, then it will need some thought put into it. With the number of unskilled laborers in the sector and with infrastructure gradually picking up pace, it is essential for the industry to come in the priority sector for it stabilize and for rates of interest, input costs etc to come down to manageable levels. 

Bijay Agarwal, MD, Salarpuria   Sattva

Massive change in SEZ policy: There has been talk for a while now that the imposition of Minimum Alternate Tax (MAT) of 18.5% on SEZs will be reduced. The hope is that it will be brought down to 10 % to 12% for the concept to be more feasible. It is believed that the policy from last year on the rates will lapse this year. Only the budget will be able to tell us whether this reprieve is available or not.  

High tax exemptions on LIG and MIG: In order to allow more people to invest the lower income and middle income groups to buy homes, there has to be higher tax exemption allotted to this. Only when they have the buying power and the assured reduction in yearly taxes will real estate look feasible to them. This in turn will help the industry work on filling the requirements from these groups in a much better manner. Home loan rates need to reduce too to allow more people to be eligible for them. Enhanced IT exemptions should also be included.

Lower registration costs can have a snowballing positive effect: The costs of services such as that of registration, service tax etc has to be brought down. If the government wants to even the plane, then they will have to concentrate on promoting group housing in the suburbs. These suburbs in turn will blossom into towns and soon these towns will be self sufficient CBDs in themselves. The pressure on current CBDs will reduce thereby influencing rates across the board.

RBI needs to get friendlier: Real estate needs to become a priority industry. Despite the massive contributions we make, the relaxation we are given is minimal at best. Securing a lender for the real estate industry is quite tough and automatically lending interest rates go up by a minimum of 3%/ This kind of step-brotherly treatment needs to stop for the mutual benefit of both. 

Venkat Narayana - Executive Director - Finance & CFO, Prestige Group

Land and environment: It is necessary for the nation to find a long-term, sustainable, equitable and transparent solution to making land available for economic development. Such a solution has to encompass scientific methods of identifying appropriate land banks, master-planning of activity zones and provisioning of crucial transportation, energy, water and other links.

Infrastructure status to affordable housing projects: Affordable housing being the need of the hour, the Government should look at conferring infrastructure status to affordable housing projects in the country. This will provide for funds at lower interest rates as infrastructure falls within the priority sector lending of banks.
Further, affordable housing policy should be formulated to provide better quality of housing at reduced costs. For such policy action, tax rebates, excise duty reduction, stamp duty waivers and expansion of the interest subsidy on loans from Rs 10 lakh to 25 lakh are necessary.

With growing urbanisation in metros, the real estate sector is seeing huge opportunity for creating newer townships. It is vital that the government promotes townships alongside industrial belts and give developers fiscal benefits to township development to entice developers in this area. With so much discussion on carbon emissions and concrete jungles, the way forward for the real estate industry is being environmentally conscious.

Currently the real estate sector contributes to more than 5% of global carbon emissions. In order to address this utmost important issue about carbon emissions faced by the globe, there is a strong need to encourage developers to build green and sustainable projects. Our government should provide appropriate subsidies to the builders and help in lowering carbon emissions. On the other hand the consumers should also be given reduction in stamp duty for opting for green development.
Neil Kapoor, Vice President, Westcourt Real Estate adds a few final points by saying, “We believe the government can create a positive environment for the real estate sector, by granting it industry status in line with infrastructure and hospitality sectors. Also, needed is the formalization of a REIT legislation that will stabilise long term domestic and international capital to invest in real estate and help professionalise the industry.”