It is time for real estate sector to get an industry status: Shishir Baijal, Knight Frank India

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India Budget 2018

Shishir Baijal, Chairman & MD, Knight Frank (India) Pvt.
Mr. Shishir Baijal

GST-induced new cost burden

The single-tax regime in India ushered in additional cost pressure on real estate. Presently real estate falls under 18% tax bracket of the Goods and Services Tax (GST) Act with 1/3rd abatement for land. However in major metros, the share of land is more than 50% of the project cost. We therefore recommend that the government aligns this with market realities and accordingly increase the abatement for land to 50%.

‘Industry Status’ to real estate

Real estate is one of the major contributors to the economy by supporting innumerable ancillary industries and providing employment to millions directly and indirectly. Growth in real estate has multiplier effect on the economy. Despite such strong fundamentals the government does not recognise real estate as an industry.. It is time that real estate sector get an industry status. This would enable developers to raise funds at lower rates and cut down their cost of capital which would eventually have a bearing on overall project costs. The move would be an ideal fillip for the stress-stricken sector amid the reforms-driven new order.

GST on affordable housing

‘Housing for all by 2022’ is one of the pet projects for the government and it wants to deliver 10 million houses under this program. Out of 10 million, 95% of the houses are to be constructed for Economically Weaker Sections (EWS) and Low Income Groups (LIG). As the affordability of this segment and the house value is low, the impact of slightest upward cost pressure is magnified and becomes a deal breaker. The current GST rate of 18% coupled with 1/3rd abatement for land is adding huge upwards pressure on the overall cost of house. We recommend lowering of the GST rates only for affordable housing projects to 12% with 50% abatement for land taking the effective GST rate to 6%. This shall provide a boost to the cause of housing for all by 2022.

Real Estate Investment Trust (REIT)

Despite the regulatory approval being in place for quite some time, REITs, a potent instrument of change in the real estate industry, have been held back. REITs have the potential to enhance the supply of commercial real estate – an enabler for the employment ecosystem. For unit holders, the long term capital gains holding period for REIT units should be brought down from 3 years to 1 year (at par with equity investments). This shall make REITs more attractive for the investors.

Shishir Baijal is the Chairman and Managing Director of Knight Frank (India) Pvt.