Focus on affordable housing, REIT & SEZ in Budget: CREDAI
The alarm on a tough upcoming budget was sounded when the newly elected Prime Minister said that "time has come to take tough decisions in the interest of the nation. Prime Minister Narendra Modi is taking all due measures towards his vision of a 'Shresht Bharat', amidst some calibrated tough measures. The recent rail hike announced by the government has shaken up the struggling real estate industry, as this will result in an increase in cost of raw material and developers will not able to increase property prices as the industry is already going through tough time. The sales have come down , home loans numbers are dropping, cash crunch is delaying the deliveries.
BJP manifesto talks of home for all by 2022. It is 6 trillion dollar requirement to service the housing deficit of 18.8 million housing shortage in India. This will further require about one trillion dollars towards infrastructure to support this development. This does not include current development of .8 trillion dollars per annum by private developers in India. So the housing market itself can be average about 1.5 trillion dollars per annum (about the same or little less than entire GDP of India currently)for coming 7 years. Currently it is 8% of GDP.
This also means employing about 20 million additional man power. Beauty is that this sector can easily generate interest of domestic as well as foreign funding agencies in various forms.
Then what is holding it back?
Apathy! Intentional ignorance, stigma and lack of understanding this sector. Globally the housing growth is barometer of health of economy. But in India discouraging housing is the theme of banking regulator. Such is the attitude that ministers and senior officials don’t even call the Housing Industry association for regular consultation on budget or discussing Health of Economy.
Though we do not expect this government to do much in this budget due to time constraint and different priorities this time but I will fail in my duties if I do not say what needs to be done. There are few key aspects that need to be considered by the new government. Affordable Housing Policy in real estate is the need of the hour for the Indian Real Estate and the new government has a pivotal task in its hand to uplift the sector.
CREDAI as a real estate body suggests to the Finance Minister to implement recommendation of Task force of appointed by government.
Allow Tax (direct and indirect) concessions for affordable housing projects. Affordable housing to be treated as priority sector.
Presently, interest rates charged by the banks to developers and home buyers are at an all-time peak and need to be brought down. The interest rate at least for home buyers must be brought down below 7%. A reduction in the base rate (rate below which no banks can lend to the corporates or industries) is necessary to help banks lower their lending rates.
The Government should address these concerns in the budget, and this should be followed through by RBI in terms of easing the repo rates and relaxing other policy instruments such as the CRR, SLR, etc. to inject liquidity into the system. This is essential if the Indian economy's key sectors such as manufacturing and real estate are to grow.
There is a dire need for an industry status for the realty sector. The government is yet to consider it. Once industry status is granted, funding for the real estate projects will become easier and at lower interest rate. Banks will not hesitate to lend to the realty sector and this will also lead to faster completion of projects thus reducing property prices. Another long pending issue in the sector is Single Window Clearance. Currently the approval process is very lengthy and takes around 1.5 yrs to 2 years for approval. Approval processes (single window clearance) to be simplified as the cost of delay in approval, adds further to customers spending by 25 to 40%. Gujarat has already implemented a single window clearance system which has given a boost to the sector in the state.
The Floor Space Index (FSI) or FAR rules were made decades ago. Changes need to be made in the Development Control Rules and higher FSI needs to be allotted to stabilize real estate rates. The current level of total tax component is 36 to 38% of sale value, which needs to be rationalized to make it affordable. The budget document should support a proper REIT structure. If the long overdue in having a REIT structure is made it can generate almost 1 lakh crore worth equity replacing debt.
We suggest a special focus on rental housing to serve the needs of a huge section of the population that may not be in a position to immediately buy houses. Funds from global resources could also be invited for this. We call for special rental housing projects under the affordable segment, treating the expenditure as capital investment for long-term capital gains, exemption from Income Tax, Service Tax, VAT and Stamp Duty for rental housing. Even the rental income from these projects must be exempted from Income Tax as the indirect benefits are far too many.
Boost rental housing as well as commercial construction sector, accelerating growth and further reducing debt in India. The holding of large number of flats in affordable category for the purpose of renting out should have concessional tax regime.
For the economic growth of the country and the real estate sector government should encourage setting up of SEZ’s across country. SEZ has served its purpose giving boost to IT and manufacturing units. If our PM needs to make India a huge manufacturing hub, support to SEZ is inevitable. Special Economic Zones (SEZ), once touted as tax/ duty free enclaves have lost their sheen due to withdrawal of Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) exemption. Investors in SEZs with a long term development vision are exploring avenues for exit or de notification. Restoring DDT and MAT benefits could help in salvaging SEZs.
Currently there are multiple taxes being levied on home buyers. We request the government to remove service tax as it further puts burden on the home buyer making property unaffordable.
We expect the government to reboot the regulatory framework surrounding real estate and put a mechanism for fast-tracking the process of developing projects. This in turn would boost the confidence of stakeholders in the real estate industry.
We suggest for reducing FDI eligibility limit to 20,000 sq meter and capitalization limit to 1 million USD. Broader base of FDI investment will enhance foreign investment and will be able to retain the funds with larger % of success.
All in all the need is the due attention and respect for business of Real Estate Development which will bring the desired growth in economy and job market.