Real estate expectations from budget 2018
Over the past two years, India’s real estate sector has witnessed a slew of policies and reforms being announced and implemented. The primary aim of these was to promote growth and increase transparency to improve the overall economic growth of the country. In the 2017 Union Budget, the sector cheered the announcement of according infrastructure status to affordable housing, increased focus on infrastructure development and policies aimed at improving investor sentiment and private participation in development projects.
During the year, the successful roll-out of focused reforms including the establishment of a real estate regulator (RERA), implementation of India’s biggest Tax reform, the Goods and Services Tax (GST), relaxations in the annual budget for affordable housing projects, incentives under the PMAY scheme and further relaxations in carpet area for affordable housing units have provided a much-needed thrust to India’s housing market. The results of these various reforms are already being felt across the country’s economic landscape. Among the 190 countries surveyed in World Bank’s Doing Business 2018 report, India saw an improvement in its ranking from 130 in 2017 to 100 in 2018. Further, Moody’s upgraded India’s credit ratings from Baa3 to Baa2, after a gap of more than 13 years; citing continued progress in the nation’s economic and institutional reforms.
While many larger issues were addressed in the previous year’s budget, the sector hopes for clarity on the way forward on various other aspects during this year’s budget. This will help propel the sector towards a sustained growth path for the long-term.
Key asks from the sector from the Union Budget 2018
To facilitate the increase in activity across the housing market, the central government could lead the way and rationalize stamp duties for union territories. The Centre should also nudge individual states to make the process of property tax assessment and collection simpler. This would go a long way in improving end-user sentiment and encourage investments in the segment.
For developers, an extension of the sunset clause on SEZ’s is a must, especially in the midst of the anticipated impact of automation and technology on the IT sector. Withdrawal of any tax incentives from SEZs might hit exports and job creation.
Other asks include:
·Tax benefits under Section 80-IA and Section 35AD to be extended to integrated township projects by including the same within the definition of the infrastructure facility.
·Service tax exemptions for affordable housing are not a part of the Model GST Law. Affordable housing should be fully exempt from service tax under GST, in view of the Government’s flagship scheme ‘Housing for all by 2022.
The government has been proactive in announcing reforms aimed at attracting capital inflows into the sector, especially affordable housing. To further enhance this, the upcoming budget should focus on aspects such as offering land at subsidized rates, enhanced FSI’s for affordable housing, tax incentives and rebates on construction materials. To encourage private developers to enter into the segment, ancillary support in the form of increased funding to National Housing Bank for cheaper mortgages, standardized costs of building materials, faster approval processes, and a targeted fund allocation for low-cost housing projects would go a long way.The Budget should widen the ambit of ECB’s for construction finance to a broader range of housing (not limiting it to low-cost/ affordable housing).
Tax incentives are not the sole attraction for foreign investors – improving transparency, clarity on investment norms and reducing approval time are factors that play a large role in controlling indirect costs and should be the focus area of the government in the upcoming budget. Multiple layers of approvals result in delays in project approvals which has a ripple effect on the entire operating mechanism. By promoting a single-window clearance mechanism, the approval process for large-scale real estate and infrastructure projects will become easier resulting in a reduction in construction delays. Additionally, to support investments in the sector, the government should allow cross purchasing of properties - investors should be allowed to invest in residential properties from the sale proceeds of commercial properties and vice-versa.
The real estate sector hopes that the Union Budget this year will work towards rationalizing the tax rates for real estate under GST, as well as provide clarity on the value additions at each stage of production to streamline the realization of income tax credit.Currently 12% GST is applicable to even affordable housing units. Additionally, the recent downward revision on affordable housing GST (from 18% to 12%) is only applicable to work contacts, which is of little help to developers as most affordable housing projects are constructed by developers themselves. The exemption from GST should be directed towards all types of construction and not only work contracts.The ambiguity around GST input on residential properties should be clarified by the government, to allow developers to commit the exact amount of GST credit a buyer will get while purchasing a property. Finally, the hope is that this year’s budget will finally address the long pending request of the sector of granting it infrastructure status.
India’s strong economic fundamentals, coupled with the pro-reforms stance of the government, have been instrumental in creating a more open, investor-friendly investment environment in recent years. With growing transparency and improving policies, the country’s RE sector is expected to become more organized while also witnessing an increase in investment flows and reduced demand-supply gap.