Though the Centre has taken multiple steps to revive the real estate sector, including lowering of repo rates, a new GST structure for the sector and setting up an Alternate Investment Fund (AIF) of Rs 25,000 crore, the sector is yet to pick up steam. On the contrary, the sector has further decelerated due to prevailing liquidity crisis, resulting in a lower uptake in the housing demand in India.
Real estate players are hoping that it is foremost important for the government to address the liquidity issue. Besides this, many players with whom THE WEEK spoke to feel that the government should grant industry status for the entire real estate and construction sector. Many are also hoping for reforms with regard to stamp duty on GST that can go a long way in reviving the real estate sector in the country.
“It is, therefore, paramount for the upcoming budget to address the liquidity issue in India while also subsuming of stamp duty in GST, to provide the much-needed impetus to the sector. At the same time, the government should also consider providing ‘industry status’ for the construction sector, which will enable developers to avail finance at lower cost and hence, bring a positive drive to the on-going and new projects,” remarked Sankey Prasad, Chairman and Managing Director, Synergy Property Development Services.
It is expected that budget 2020-21 will focus on the resolution of the gridlock that the real estate sector finds itself in, characterised by stalled projects due to project delays, cost overruns and funding constraints. Home buyers have been constantly hurt by high real estate prices and risks, despite weak sales and high inventory and highly leveraged developers and projects.
A report by the rating agency Brickwork Ratings observed that the upcoming budget is expected to layout or announce the policy for the deployment of different funds for the real estate segment to speed up disbursal and deliveries of homes, and boost customer confidence and disposable income. The report also says that in order to meet the overall housing demand and not just ownership, the budget is expected to announce a National Rental Policy—the need for which was mentioned in the last budget.
The Brickworks Ratings report further observed that a rental policy would help address demand factoring in mobility and affordability, especially of the large and growing young working population. A robust policy can deploy unsold housing stock to meet real end-use demand, open avenues for entry of alternate financing such as REITs, and improve financial sector’s asset quality as alternate financing for rent receivables substitute sticky developer loans. The report further says that it is expected that there would be initiatives to improve affordability and disposable income by the government that in turn would enlarge the ambit of affordable housing, and relief in personal income taxes, including Section 24 (on housing loan interest) and to primarily boost demand in the affordable and mid-segment categories. The rating agency also predicts that the budget may also address loan products, which mitigate impact of construction and completion risks on the home buyer.
“The budget should offer a carefully assessed approach to rationalise input costs that can benefit both the real estate developer as well as the home buyers. At a time when the NBFC crisis seems to be unabated, the government needs to re-examine or introduce efficient methods to finance land procurement, by developers, which is currently misaligned. Additionally, the government must formulate methods to reduce the cost borne by the developers during the pre-construction phase, especially with land procurement and during the pre-RERA phase, so as to increase the cost feasibility of an affordable housing project,” observed Ramji Subramaniam, Managing Director at Sowparnika Projects.
Some industry players also feel that the budget should address other concerns of the real estate sector such as the single-window clearance and industry status for the entire real estate sector. The industry expects that such steps will greatly reduce the project time lines for developers and help them procure funds at a much better rate. “If such measures are taken by the government, they will help reduce the input cost of construction involved, thereby making the final product viable for the end consumers. As the industry is facing severe liquidity issues, quick steps should be undertaken by the government to ramp up adequate liquidity into the system,” observed Madhusudhan G, Chairman and MD, Sumadhura Group.
According to some, housing loan interest rates need to be reduced further to push the demand and sales in the real estate segment, and also for the restoration of the income tax benefit on a second home. “If the income tax benefits are restored on a second home it will benefit home buyers in a big way and also stimulate the real estate sector. Additionally, a seamless approval process is essential as it could help in faster execution of infrastructure and real estate projects,” pointed out Lindsay Bernard Rodrigues, Director, Bennet & Bernard Group, a Goa-based luxury real estate developer.
Surendra Hiranandani, chairman and managing director of House of Hiranandani, noted that the Alternative Investment Fund with an initial aid of Rs 25,000 crore should be executed on a priority basis. Besides, there should be measures such as reviving the input tax credit for housing sector on a priority basis. “After reduction in GST rates, the government had withdrawn the input tax credit. Its revival can provide a relief to the developers and housing can be made available at a lower cost. There is also a need for deductions in personal taxation. This measure can go a long way in boosting overall consumer demand and help in lifting the economy. An increase in the existing Rs 2 lakh tax rebate on home loan interest rates will once again be a good move. This could result in higher demand for housing, especially in the affordable and mid-segment categories. Interest rates on home loans need to be reduced. Reduction in stamp duty to at least an extent of 50 per cent can also help raise demand,” said Hiranandani.
He further pointed out that there was a need to redefine affordable housing. “As per GST and income tax laws, a house has to meet the dual condition of not exceeding 60 square metres of carpet area and a price cap of Rs 45 lakh to avail the reduced GST rate of one per cent for affordable housing, and also the benefit of tax exemption for such projects. However, this condition related to price cap of Rs 45 lakh needs to be extended. Though affordable housing will be a major growth driver in real estate, there are other multiple concerns such as unavailability of urban land at reasonable prices, rising costs of construction, high taxes, regulatory issues and unfavourable development norms owing to which developers are hesitant to enter the segment,” added Hiranandani.
