Budget 2016 Good For Real Estate; More Expected Next Year

Union Budget 2016 has come as a shot in the arm for the real estate sector, especially with moves like extending an additional Rs 50,000 deduction on interest payment on loans to new home buyers. The decision is seen going a long way in boosting demand in a tepid market. Growth in home sales is crucial for the sector, which has witnessed a dry spell over the past three years.

Now, with the stage set for a revival, there are expectations of many more steps that the government can take next year for the benefit of the sector. Here are a few that Finance Minister Arun Jaitley might like to consider in Budget 2017:

Affordable housing

The government, to push its scheme to provide 'Housing for All by 2022', has announced service tax exemption for developers focusing on affordable housing units with sizes not exceeding 30 square metres in four metro cities and 60 square metres in non-metros. While this is a positive move, developers, especially in the budget segment, are hoping for a clearer definition of 'affordable housing' to help first-time buyers in metros. The Rs 50-lakh bracket will help home buyers only in the Tier-II and -III cities, as house prices in metros have already exceeded that benchmark. “The Budget is good for the affordable housing segment, where no service tax has been proposed for houses up to 60 sq mt, and there are more exemptions on housing loans under Rs 50 lakh. The government now can also provide relaxation in taxes for both industry and individuals,” says Shivakshi Gogia, chief executive office, Ascent Group.

Tax anomalies

While tax benefits have been given to individual home owners, the finance minister can now ease the pressure of a layered tax structure on the sector. A long-pending request of the sector has been service tax exemption on joint development agreements. Currently, these agreements are taxed at the time they are entered into; the sellers, though, reap the benefit of the deals much later. Jaitley also has yet to address the industry's request for removing the Minimum Alternate Tax (MAT) and Dividend Distribution Tax on Special Economic Zones, even as the government is trying to revive these zones after a long silent spell.

Fund crunch

The sector has been asking the government to make it easier to access liquidity by opening new avenues, including the option of raising funds through external commercial borrowings (ECBs). A new avenue for fundraising is extremely important for the sector at present.

The sector has been facing liquidity crunch as developers are sitting on huge unsold inventories, thanks to a slowdown in sales. Advance money from potential buyers is a major source of funds for the sector, but slow new launches have further squeezed liquidity. Banks, too, have become cautious while lending to real estate developers.

Infra status

Union Budget 2016 has sought to draw investments into infrastructure to boost connectivity, thereby improving prospects for the real estate sector. However, the sector has also been seeking an infrastructure status. This will change the way bankers view the sector at present. As interest costs have been on the rise for the past few years, such a move will provide a huge relief to the sector. It will also increase transparency in the sector.

Single-window clearance

Developers have not been able to fully reap the benefits of a spurt in locality prices and deliver housing units on time, thanks to layers of bureaucracy surrounding clearances. They have been seeking a single-window clearance system for projects mired in multiple government departments. Such a move will significantly reduce the time-to-market for real estate projects, thereby lowering costs.

“An industry status to the sector, a single-window clearance system and tax concessions on home insurance premiums are some of the measures that can significantly boost sentiment in the sector,” says Surendra Hiranandani, chairman & managing director, House of Hiranandani. He also says that sticking to the timeline of three years for affordable housing projects might be tough in the absence of a single-window clearance.