In its wishlist for the upcoming budget, the first one to be presented by the new government, the real estate sector has pitched for increased bank funding to developers for completing projects, re-introduction of input tax credit (ITC) in GST, rental housing and enhanced tax sops for homebuyers and investors.
Enhanced funding for realtors
As the sector tries to recover from the liquidity crunch, the funding issues of real estate developers need serious attention, say experts.
“The liquidity crisis is the major factor preventing completion of over 5.6 lakh stalled units across top seven cities. For this, the government could possibly increase the finance limits for NBFCs – a major source of funding for developers. This will help revive the sector to a large extent,” said Anuj Puri., Chairman, ANAROCK.
Besides NBFCs, the government must take steps to ensure bank funding to developers as the severe fund crunch is contributing significantly to project delays.
Realtors apex body CREDAI in its budget wish list has demanded that banks should fund developers to buy land for development of affordable housing projects. It has also stated that the definition of affordable housing should be same across all the legislations.
“Land as a value of the project cost, comprises 40 per cent of the overall project cost. With the advent of RERA, one cannot sell until all approvals are received which means that one needs funding either by way of promoter equity or private equity,” CREDAI said in its Budget memorandum.
Land funding is typically done by NBFCs or private equities, it said, but added that cost to developers are as high as 25 per cent.
“The support of the banking system is needed to bridge this gap. Funding of land by commercial banks was permitted by RBI until 2008 and should be resumed at the earliest for affordable housing,” CREDAI said.
Niranjan Hiranandani, national president, Naredco and co-founder and MD, Hiranandani Group, said that quick corrective steps should be undertaken by apex bodies and government to pump in enough liquidity in the system to bring economic growth on track.
Further, expectation lies ahead in rationalization of taxes by subsuming stamp duty in the GST, extending Input Tax Credit to the commercial segment, reducing corporate tax, abolishing of MAT to provide thrust to SEZ developments.
More tax benefits for homebuyers
More tax benefits are required for homebuyers and investors. “While the interim Budget in February did try to woo back investors and buyers alike by offering some sops, there need to be more direct benefits by way of reduction in income tax slabs, higher relief on housing loan rates, and an increase in the deduction limit under Section 80C from the current Rs 1.5 lakh a year,” said Puri.
The deduction for principal repayment of housing loan may be considered for a separate or standalone exemption under Section 80 C for up to Rs 5 lakh per annum for five years. Home loan interest up to Rs 4 lakh may be exempted from Income Tax under Sec 24 B, experts said.
Input Tax Credit benefits should be re-instated
On the GST front, the ITC benefits should be re-instated.
“Without ITC benefits, builders are seeing sizeable drop in their profits and will eventually pass the buck on to buyers in the form of higher prices. With the ITC benefit, property prices will remain under control and thereby boost sales, helping beleaguered developers to overcome some of their financial stress,” said Puri.
“We should get back input tax credit. Every developer – big or small should have a transparent tax trail and should be within the ambit of the GST system. We feel that the revenues that have increased by Rs 1.14 crore in April, those need to be built upon. India needs revenues of more than 1.25 trillion of direct and indirect taxes to catapult itself into a 12 to 15 trillion dollar economy,” Rajeev Talwar, Chairman Naredco, president PHD Chamber of Commerce and Industry and CEO DLF, told Moneycontrol in an exclusive interaction.
From April this year, the government has withdrawn the ITC benefits, but reduced GST rate to 1 per cent from 8 per cent for affordable housing. For other housing projects, the GST rate has been cut to 5 per cent from 12 per cent earlier. The government did give a choice to developers to follow old rates in case of projects launched before April 1, 2019.
Push rental housing
Another expectation from the government is to frame a National Rental Housing Policy in order to meet the target of Housing for all by.
It is usually assumed that a person will buy property close to his workplace but he may not employed in the same area all his life. He should therefore be free to move to any other part of the country to seek employment, said Talwar.
“When he goes to those areas, it should be rental housing which should be provided to him because ownership of the house will remain wherever he invested first,” he said, adding in developed countries, rental housing accounts for 50 percent of the total portfolio.
Leasing of homes should become a large part of the Indian real estate portfolio. It should not be looked as the preserve of the rich alone. There was a time when all chawls in Mumbai were leased out, let’s bring them back in a big way. There should be at least 2 to 4 crore homes, some of which are owned and some of which that are leased out. Incentives need to be provided for this initiative, he added.