Pre-Budget: Real estate sector seeks infra status, interest rate cuts and tax sops

19 Jan 2017

The real estate sector, which is burdened with huge unsold stock and a still lax demand because of unrealistic prices, is pinning hopes on the upcoming budget to revive its fortunes. Besides infrastructure status, the industry is demanding a reduction in housing and project loan interest rates to levels of 7-8 per cent and 10-12 per cent, respectively, to boost demand.

Real estate sector says besides providing a huge market for core sector industries like steel and cement, it is also the prime driver of jobs and credit demand and no government can ignore the sector without sacrificing economic growth.

The National Real Estate Development Council (NAREDCO), the apex body of real estate sector, under the aegis of ministry of housing and urban poverty alleviation, has asked the government to introduce necessary reforms in the upcoming union budget to revive the troubled real estate sector.

In its pre-budget demands presented to the finance minister, the industry body has sought infrastructure status for the housing sector, at least to cover low and MIG category housing units.

''Granting of infrastructure status to projects will attract large companies to the sector and inculcate corporate governance. For the sake of convenience and uniformity in law, the 'built up area' in the Income Tax Act should be replaced by the 'carpet area' as defined in the Real Estate (Regulation and Development) Act 2016,'' according to NAREDCO president Praveen Jain.

NAREDCO, in its memorandum, has also demanded lowering of housing and project loan interests. It has suggested that the government should bring housing loan interest rate between 7-8 per cent and project loan interest rate between 10-12 per cent.

Besides, it has sought a moratorium on repayment of principal amount of all pending and new loans for three years, to retrieve developers struck with delayed / stalled projects.

''This will help in early revival of the real estate sector and mitigation of problems faced by consumers as well as developers,'' Jain added.

As the government is moving towards implementing the Goods and Services Tax (GST) in the country,

Also, NAREDCO has suggested that under the proposed goods and services tax regime,  all taxes, duties, charges, cess, etc, relating to the real estate, viz, land use conversion charges (agriculture to non-agriculture and from one land use to other land use), development charges, and subsequent possession related charges (stamp duty, transfer duty, VAT, service tax etc), should be merged into one.

This will put the sector on high growth path and will help achieve the target of building 20 million housing units by year 2022 under the Pradhan Mantri Awaas Yojna.

The industry body also wants the government to incentivise home buying by granting tax reliefs interestrate cuts to bolster purchasing power of buyers.

NAREDCO's memorandum suggested that the sealing of Rs1.5 lakh under section 80C be increased to Rs2.5 lakh and Rs1 lakh out of that be exclusively reserved for payment of principal borrowed for the purchase of a residential house. This will help in boosting the housing stock as well as sales.

It has also suggested, that the deduction on account of interest paid  on home loans, under Section 24(b) should be made applicable from the year in which capital was borrowed, as for principal u/s 80C, and should be to the extent of full interest paid, at least in respect of one house.

Alternatively, it wants the limit of Rs 2 lakh should be raised to Rs 3 lakh for owners occupied houses. Also, three years period for acquisition / completion from the year of borrowing should be dispensed with. This holds ground as a large number of projects are running behind the schedule post the global financial meltdown of 2008.

Commenting on various tax rebates suggested for homebuyers, NAREDCO chairman, Rajeev Talwar, said, ''Consumers are already burdened because of the problems of the industry. Supporting the Industry will help consumers indirectly. He opined that to boost savings and sales, it is important that Government looks at incentivising the consumers in all possible ways. Given the example of cities like Delhi and Mumbai where most houses are priced Rs 50 lakh and above, he felt that tax sops in the upcoming Union Budget should cover these segments also."

To augment construction of rental housing, the apex body has also suggested that the deduction from rental income under Section 24(a) be increased from 30 per cent to 100 per cent to improve effective ROR from renting, at least till 2022, the year by which the target of ''Housing for All'' is to be achieved. This will help in promoting rental housing.