Great Expectations 

The Confederation of Real Estate Developers Association of India (Credai),the apex body of real estate developers in India has submitted its suggestions regarding the Budget to Finance Minister Pranab Mukherjee.

The industry body is of the view that the recent amendments to Section 56(2) of the Income Tax Act,which pertains to taxation of capital gains,puts additional financial burden on end users. After 2009,capital gains tax will be levied on the property seller based on the difference between the purchase price and the value determined by the registrar at the time of registration for the purpose of stamp duty. Credai has recommended that Section 56(2) of the Act should not be made applicable to the transfer of immovable property.

At present,the limit specified for deduction for repayment of principal amount of a home loan as available under Section 80C for self-occupied residential property is up to Rs 1 lakh. Various other investment avenues like provident fund,insurance,mutual fund,etc. are part of this Section and therefore the share of benefit available to home loan buyers is insignificant. Wide-ranging consensus is that a separate deduction to the tune of Rs 1 lakh should be provided for the housing loan repayment or the overall 80 C deduction should be increased to Rs 2 lakh. While the limit of deduction is raised,this deduction can be restricted to individuals up to a certain income.  Increasing the threshold limit for the deduction will provide relief to the middle class, says a note from Credai.

Secondly,due to end-use restrictions,proceeds from external commercial borrowings (ECBs) are not allowed to be used for real estate activities at present. At the same time,access to alternative sources of construction finance from banks and financial institutions has become hard to come by. The industry body has suggested that ECBs should be permitted for funding construction costs of at least those real estate projects that qualify for 100 per cent FDI. Being an alternative source of low-cost borrowings for developers,ECBs will help them optimise cost, says the note from Credai.

In the past,incentive was offered for developing  low-cost housing through a tax holiday to lower income group (LIG) and middle income group (MIG) housing projects under Section 80-IB (10) of the Act. Prior to the Finance Act 2009,the tax holiday was available for housing projects approved prior to March 31,2007. The deadline was extended to March 31,2008 in the last budget. The tax holiday was available to housing units of up to 1,000 square feet in Delhi and Mumbai and up to 1,500 square feet in other cities. According to developers,because of high land and input costs,affordable housing has become unviable in the vicinity of large cities. We want the finance ministry to extend the tax holiday to housing projects under Section 80 IB (10), says Pradeep Jain,CMD of Parsvnath Developers.

INFRASTRUCTURE STATUS

This has been a long-standing demand of the sector. Now industry stakeholders are demanding infrastructure status for affordable housing and integrated township projects. They argue that integrated townships projects have a long gestation period and require significant investments. Hence,they should be given incentives at par with infrastructure projects. Says Pranab Datta,MD of Knight Frank India: It will ensure that these projects have better access to funds. For instance,these projects could benefit from increased allocation from India Infrastructure Finance Company (IIFCL) which lends to the infrastructure sector.

Credai has also requested tax incentives for redevelopment projects in slum areas and at the site of dilapidated buildings. It has stated that while granting the exemption the government could impose restrictions on the maximum area of the new units developed so that the tax exemption is availed only by developers keen on improving social infrastructure.

Further,according to Kumar Gera,chairman of Credai,Credai has also recommended a single-window clearance system for integrated townships as at present 30-40 approvals are required for such projects.

UNIFORM TAX RATES

At present,stamp duty rates on property transactions vary from 5 per cent to 15 per cent across states. Experts opine that the Centre should try to bring uniformity in these rates. Moreover,these rates should be brought down,they say. While the reduction in rate will lead to loss of revenue initially,this will over the long run be compensated by the widening of the compliance net. Further,says Navin Raheja,CMD of Raheja Developers: If stamp duty has already been paid on one transaction,there should be a mechanism to provide concession or a system of credit for subsequent transactions. This will avoid the cascading effect of stamp duty,thereby reducing the cost of property. The concept of credit for taxes paid on subsequent transactions already exists in case of CENVAT,VAT,MAT,etc. 

BOOST TO RENTAL HOUSING

Stakeholders are also hoping that the budget will contain provisions that will boost rental housing in the country.

Rohtas Goel,president of National Real Estate Development Council (NAREDCO),states that the high cost of houses and high property taxes lead to a low rate of return (ROR) from rental housing making renting out an un-remunerative proposition. For that reason to improve the effective ROR from renting,it is suggested that the deduction from rental income under Section 24 be increased from 30 per cent to 50 per cent. This will promote rental housing, he says.

According to Datta of Knight Frank India,Our country needs to move from the concept of providing housing to providing shelter. For a successful rental housing model a strong legal framework is required to ensure right usage of the property. A vibrant REIT market will also help set up an institutionalised residential rental market.

PRIORITY TO GREEN HOUSING

In an energy-scarce world,the concept of green housing is beginning to catch the fancy of both developers and home buyers. These buildings are designed to optimise the use of energy,water and other resources. Besides reducing waste,pollution and environmental degradation,these buildings also protect occupants health. Industry stakeholders want the government to provide fiscal incentives that would help neutralise the extra cost incurred on the construction of these buildings. A weighted deduction of 110 per cent of the amount spent on construction should be allowed, says Vidhur Bhardwaj of The 3C company,which specialises in the construction of green buildings.

Finally,industry stakeholders feel that the economic stimulus packages that helped the sector survive the worst of the downturn should not be withdrawn in a hurry. Further,infrastructure development,on which real estate growth depends heavily,needs to be expedited. Says Anuj Puri,country head of Jones Lang LaSalle Meghraj: Measures to protect this vital sectors growth prospects should include provisions that enable the laying down of necessary infrastructure. It will ensure that the potential of new locations is capitalised upon. The creation and enablement of linked-up satellite settlements near main cities is of utmost importance for addressing the demand-supply mismatch in housing.

Industry participants must,however,temper their high hopes with a dose of pragmatism. One of the Finance Ministers key priorities in this budget will be to rein in the runaway fiscal deficit. Amid pressing demands from different industry segments,he will have to be choosy and allow only those concessions that deliver the maximum growth for the revenue forgone by the exchequer.

praveen.singh expressindia.com