Budget 2014-15: Expectations for the Real Estate Sector
Hon’ble Finance Minister will present the interim budget for 2014-15 in the Parliament on Monday Feb 17, 2014. The budget will focus on presenting the report of the Centre’s income and expenditure in the Parliament during the fiscal year 2013-14, it will also focus on coming up with certain policies and measures that lead to the country’s socio-economic development.
However, with the forthcoming general elections, the government will not be allowed to make major changes in the policies. Yet, the real estate sector, being a major economy driver in India, is hopeful that the budget will bring some policies that can improve the market sentiments in India.
Commonfloor recently interviewed key real estate players about their expectations of the upcoming Union Budget.
N. Nandakumar, President, CREDAI (Tamilnadu) & MD, Devinarayan Housing
Firstly, the government must scrap the service tax on under-construction properties. From a buyers’ perspective, this tax adds significantly to the overall cost of the property.
Secondly, we hope for some concessions in affordable housing projects. The government hardly gives any incentives to the developers to be a part of affordable housing. We have more than 18 million housing shortage as of now and this cannot be addressed single-handedly by the government or any of their schemes. Unless there are some kind of incentives with regard to taxes and excise benefits to such projects, this segment will continue to be under-stressed by the providers whether private players or public players.
Thirdly, there is a dire need for an industry status for the realty sector. The government is yet to consider it. Once the realty sector comes gets the industry status it will be a priority sector for raising funds at a lower cost which eventually will transform into reduced sale price to the buyers.
Fourth, the RBI is also continuously increasing the repo rate from time-to-time in order to keep inflation under control but it is adversely impacting the real estate sector because EMIs are rising unabated.
M R Jaishankar, CMD, Brigade Group
We don’t want anything more adverse than what it is now. The industry is bombarded by taxes both by Central and State governments. We don’t want anything additional in this budget.
Furthermore, to give a fillip to the sector, it must be given an industry status by the RBI and finance departments etc., considering the fact that it is the second largest employment provider in the country. Once it acquires an industry status then some interest rates approach by the banks to the sector will be different. As a result, it will impact the interest rates that they charge to the real estate sector.
Add to this, the government must restore ATIB for affordable housing which allowed profits under it not to be taxed at the corporate level. The government needs to consider this as it will lead to tremendous demand in affordable housing which in turn can lead to much greater consumption of steel, cement, etc. which in turn leads to greater revenue and higher GDP growth. Hence, there are win-win solutions that need to be brought in.
Syed Beary, Chairman, IGBC (Bangalore Chapter)
Due to the coming elections, I don’t expect any revolutionary changes to happen in the coming budget. That apart, as a person connected to real estate sector, I feel, the budget must streamline the taxation system including Central Government taxes, State government taxes, municipality taxes etc. The government must reduce various taxes as it affects the end-user. The disparity between the haves and haves not is increasing further. In the bargain, the roof over the people that are haves not will further become a dream.
Ayub Khan, Hon. Secretary, BRAI & Owner, Apex Estates
Firstly, Service Tax must be removed. For instance, if somebody buys a 2 BHK flat for Rs 60 lakhs then almost 25 % of this goes as taxes including registration, service tax, VAT etc. These taxes need to come down drastically while the service tax needs to be scrapped completely.
Secondly, Interest rates must come down. The average interest rate world-wide is 4-6% in developed countries like US, Canada etc. But in India this rate is very high – 11-12%. The government needs to bring this down to at least 6-6.5% because middle-class will not be able to opt for loans. In India, 90% of property buyers opt for home loans and if rates are not brought down then buyers will not be able to go for loan.
Shabeer Sait, Executive Head – Operations, Irshads Property Matters
The major need of the hour is single-window clearance for project approvals. This process is very tedious and as such there is no transparency in the system. A single-window clearance would help boost the sector in the long run.
Going forward, taxes on under-construction properties must be reduced as it will help first home buyers. Service tax, car parking, sales tax and VAT on built-up etc. are taxes implied during the construction of the project whereas completed properties only attract registration charges. Ironically, it is the under-construction properties that are competitively priced whereas completed projects are at higher prices. Value-wise, it is almost the same to go for under-construction project plus the taxes or completed projects minus the taxes. The government needs to offer some benefits for buyers opting for under construction properties. The only benefit that the customers get is the staggered payment.
Another key issue that the government must consider is vertical growth rather than horizontal growth. The FSI should be higher because horizontal growth may also lead to encroachments in areas.
Farook Mahmood, CMD, Silverline Realty
One is, they should increase the percentage of the home loan and they should reduce interest amount on first home purchases. If someone is buying a second or a third home then a normal commercial rate can be charged but for first-home buyers the rate should be subsidized to some extent because housing is a basic necessity for every individual. In India, there is shortage of 20-30 million sq. ft. which is not going to be reduced at any point. At the State level, the stamp duty must be brought down.
Currently, the percentage of the home loan one can avail is mostly about 75% which should be increased to at least 90% and the remaining 10% can be paid by the buyer as down payment. The interest rate for first home buyers must be reduced to at least 7%.
Government needs to be realistic on taxes. In my knowledge, at least 30-40% of the total property cost goes as taxes. This should be reduced to a large extent particularly for buyers who are buying it or the first time.
Commonfloor opinion
As seen above, there are some important key points market players want the Central Government to address in the annual budget.
- Reduction of taxes and removal of service taxes, which significantly increases the price of a property and burdens the common man.
- Reduction of repo rates and in turn, the rate of interest on home loans. With the increase in repo rates, developers fear that the rate of interest on home loans will increase. This will become an additional burden on home buyers, as most people go for loans. Reduction of home loan rates would encourage more people to go for loans.
- Providing an ‘industry’ status to the realty sector. Once it acquires that status, then interest rates by the banks to the sector will be different. As a result, it will reduce the interest rates that they charge to the real estate sector.
- Provision of a single-window clearance for project approvals. The current process for project approvals is very tedious and there is no transparency in the system. A single-window clearance will help the sector in the long run.
If these key concerns are addressed, the real estate sector can bounce back to its glory and help the country’s economy in a major way.
