Despite the Narendra Modi government's constant focus on improving housing, real estate is perhaps the only sector of the economy that has witnessed a de-growth in the last four-and-half years. This time, before the Union budget, real estate developers are looking forward to a host of measures to benefit them and house buyers, primarily by rationalising tax on property buys.
With the rollout of both GST and the Real Estate (Regulation and Development) Act (RERA), developers have complied with stringent tax rules. As a result, purchase of new houses became costlier, as THE WEEK reported in July 2018.
This time, before the Union budget, housing developers are queuing up to seek correction of a huge anomaly. This is the subsumption of the GST on property buys with the stamp duties (paid to state governments), as was done for all other goods and services under the GST indirect tax system.
Builders and housing developers are sitting on huge inventories that have been on the rise over the last two years. The real estate sector also witnessed exits of a number of FDI firms from the sector, despite steps like RERA improving India's rankings in the Ease of Doing Business annual survey of the World Bank.
"The stabilisation of stamp duty norms across states will help in reducing the misinterpretation through a simpler tax regime. We also believe that GST rates should be brought down to 5 per cent, which would lead to high incentives (for homebuyers) and thereby generate more demand in the industry," said Sanjay Dutt, MD and CEO of Tata Realty.
The GST Council had recently allowed inclusion of service providers under the composition scheme of GST, which allowed smaller firms to pay GST at a uniform rate of 5 per cent. Housing developers sought inclusion of sale of properties under this GST scheme.
Dutt concurs that the focus of the budget should be on allowing the developers in the sector to liquidate their inventories easily. "With our unsold inventory still at a high, the reduced GST rate could help in the reduction in a big way," he said as he revealed his major expectations from the budget.
Like Dutt, several builders expressed hope that Finance Minister Piyush Goyal's union budget would address the issue of unsold inventories haunting their business and address it most urgently.
Other than subsumption of the GST and stamp duties on home purchases, the real estate sector also seeks tax breaks for purchasers of self-occupied properties.
"The limit for tax deduction on interest of home loans should be increased to above Rs 3 lakh from Rs 2 lakh currently. This step alone could provide the impetus to home buying by a large extent," said Rajiv Talwar, CEO, DLF, and chairman of the National Real Estate Development Council (NAREDCO), an autonomous industry self-regulatory body under the ministry of housing and urban affairs.
Apart from steps for boosting housing demand, NAREDCO members have also sought that the Union budget bring in a single-window clearance system to avoid construction delays and receive quicker environment clearances for projects.
Among other things, developers also want the government to give its earlier budget promise of 'housing for all by 2022', another gentle push this time.
"Affordable housing is the need of the hour. The Rent Control Act, a major factor throttling the rental market, has been abolished for many years in several parts of the world, but Indian states have been slow to act on this reform," said Nimish Gupta, MD-South Asia of land development and real estate think tank Royal Institution of Chartered Surveyors (RICS).
"Low yields on rental housing have continued to remain a bottleneck for promoting a healthy rental market. Therefore, lowering the tax rate on rental income, along with taxing a much lower percentage of the rental income would help incentivise rental housing," adds Gupta, on his views for improving the progress of Prime Minister Narendra Modi's 'housing for all' promise.
The Pradhan Mantri Awas Yojana (PMAY) scheme has already witnessed a lot of activity on the ground with developers rushing to make affordable housing projects. It remains to be seen whether the government, too, feels that it is now time for those investments to show results, to resolve the housing and the NPA crisis in the interim budget for 2019.
