Liquidity issue, Industry status, Extension of the Sunset Clause of SEZ and restructuring of realty sector loans amongst other policy changes, the real estate leaders list down their expectations that can help boost the real estate sector.
A fiscal stimulus to the real estate sector will have manifold affect on 269 allied industries: Dr. Niranjan Hiranandani, National President – NAREDCO
Growth of Real estate & Urban infrastructure is imperative to provide an impetus to India’s economic growth. A fiscal stimulus to the real estate sector will have a manifold affect on 269 allied industries with a multi-dimensional impact on enhancing the GDP growth inclusive of employment creation. It will play a pivotal role in achieving an ambitious target of $5 trillion economy”.
In this Budget 2020, the Indian real estate sector expects a holistic solution rather than the piece-meal solutions that have been offered so far. The problem of liquidity is a complex one, what is needed is a resolution with execution speed – so, there is a need for ‘acceleration’, and NAREDCO hopes that the Hon’ble Finance Minister does the needful in the upcoming Budget proposals.
Industry Inc looks forward to the bold fiscal measures in key areas of concerns as follows:
1. Liquidity Issue – Real Estate Industry is facing serious challenges related to liquidity crunch which needs bold fiscal measures for resurrecting the reeling industry. The industry has been demanding a restructuring of loans or a one-time roll-over in case of the stressed assets at the options of banks. In such cases the borrower will retain the asset classification of the restructured standard accounts as standard and the same will not be treated as NPA.
The sector has long been demanding a single window clearance mechanism: Ramesh Nair
Measures like an increase in limit under Sec 80C, reintroduction of long term infrastructure bond and tax free bonds by infrastructure companies will go a long way in providing the boost.
In the last couple of years, the real estate sector has been facing some rough weather, specially the residential segment. However, off late, we have been witnessing a few positive trends in the demand side of the market. To keep the momentum alive and to further support the market dynamics, the Union Budget is an effective tool that can be used by the Government to bring in more demand side interventions to incentivize the homebuyers who are extremely crucial for the revival of the sector.
Extension of the Sunset Clause of Special Economic Zones
The government had introduced a sunset clause for SEZs in 2016. According to the clause, only an SEZ unit that commences operations on or before March 31, 2020, shall be eligible for an income tax holiday. Considering the challenges faced by the real estate sector in the last couple of years, there is a need for the government to extend the date and provide the required relief to SEZ units and developers.
Reduction in holding period of REITs for long-term capital gains
The reduction in holding period from three years to one year while calculating long-term capital gains from REITs will provide a level playing field with competing equity instruments.
Budget should consider providing more incentives for private sector investments in affordable housing: Anuj Puri
As the countdown to Union Budget 2020-21 begins, all sectors hope that the government will unleash a plethora of goodies – from tax cuts and other consumption boosters to increasing credit off-take from banks to ease liquidity. Real estate particularly hopes for the quick implementation of alternative investment funds to rescue stressed residential projects. The pressure on the Finance Minister is as high as it could possibly go, considering the state of the economy.
The real estate sector does contribute over 8% to the Indian economy – and has justifiable expectations from Union Budget 2020-21:
• Hike the INR 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act – This could kick-start healthier demand for housing, especially in the affordable and mid-segment categories.
• Personal tax relief, either by a cut in tax rates or favourably readjusted tax slabs – The last increase in the deduction limit under Section 80C (to INR 1.5 lakh a year) was in 2014 and an upward revision is long overdue.
• Include ITC benefit in GST for under-construction homes – While the GST rate on under construction properties was reduced to 5% in 2019, the previous ITC benefit was shelved. Already cash-starved developers cannot avail tax benefits for construction raw materials and the increased costs are passed on to buyers.
The government needs to take further measures to address the worsening NBFC liquidity crisis: Shishir Baijal
The Government has taken meaningful measures to alleviate the stress in the real estate sector by setting up an Alternative Investment Fund (AIF) for last mile funding of the projects stuck in affordable housing segment. Rationalising the Goods and Services Tax (GST)rate, boost to overall affordable housing segment and support to NBFCs are some of the other positive steps undertaken by the Government. Now is the time to look further and focus on more specific issues pertaining to the real estate sector.
Following are a series of expectations from the Union Budget:
• ‘Industry status’ to real estate
With the transformation in the way business is conducted under the reformative Real Estate (Regulation and Development) Act, 2016 (RERA) regime, it is time to recognise the role of the real estate sector as a full-fledged industry. Real estate is one of the major contributors to the economy, as it supports innumerable ancillary industries and provides employment to millions, directly and indirectly. Growth in real estate has a multiplier effect on the economy. Availing industry status would enable developers to raise funds at lower rates and cut down their cost of capital and augment their execution capabilities.
There is a need to ensure better transmission of the repo rate cuts: Anshuman Magazine – Chairman & CEO-India, South East Asia, Middle East & Africa, CBRE
The first ever budget presented by Finance Minister Nirmala Sitharaman in 2019 provided a strong ground for the country to move towards its ambitious goal of a USD 5 trillion economy by 2025. It also struck a fine balance between ‘Ease of Doing Business’ and ‘Ease of Living’ in the country. This was followed up by measures related to corporate tax, financing options for housing project and a massive allocation of Rs 102 lakh crore for infrastructure projects. The policy level intentions of the government are positive and are aimed towards addressing the key issues faced by the Indian economy. This makes the implementation of all these projects even more important and we are hopeful that the Budget 2020 will pave the way for reviving the economy.
The massive allocation for infrastructure projects was a major boost for the economy and its timely implementation will go a long way in propelling GDP and result in an improvement in connectivity and logistics. While the government has taken measures during the year to address the liquidity challenge by NBFC’s and banks, it is imperative that more concrete steps are taken in the direction of a fiscal consolidation path. There is a need to ensure better transmission of the repo rate cuts – as the same were undertaken to enhance credit growth in the market. While real estate has attracted investment over USD 6 billion in 2019, however the government should take more steps to ease and widen domestic/international fund flow, fasten approvals/ clearances, provide incentives to aid use of technology to allow faster construction and launch some skill development programmes specifically aimed towards RE- which is the second largest employer in the country. Measures to streamline operations, funding, skill and timelines will go a long way in the development of a stable and mature real estate and infrastructure sector in the country.
The primary priority must be to uplift the buyer sentiment: Kamal Khetan – Chairman and Managing Director, Sunteck Realty Limited
The primary priority must be to uplift the buyer sentiment. While this can be done at multiple levels, increasing the current tax exemption limit on interest of Rs 1.5 lakh (Rs 3.5 lakh for affordable housing) to Rs 5-6.5 lakh (at least for FY21 and FY22) will lead to a confidence boost for buyers to expedite their decision. The Government must simultaneously provide adequate tax relief to those stuck with incomplete projects, yet paying pre-EMIs regularly without any tax relief.
Another area to boost buyer sentiment is via tax relief on house property income. Tax experts highlight that the standard deduction of 30% has not been revised since early 2000. This must be evaluated, considering the current dull scenario and a higher inflation in house maintenance costs.
Even though the proposed plans to improve liquidity to developers and provide last mile funding are major steps towards alleviating the sector, we believe that banks must be prodded to ease lending to real estate projects, perhaps through a relaxation of risk weightage norms, albeit temporarily.
The sector needs a one-time subvention scheme and restructuring of realty sector loans: Rajan Bandelkar, President, NAREDCO Maharashtra and Managing Director, Raunak Group
We are highly optimistic about the union budget and are expecting the Finance Minister to take corrective measures that would ease out of the liquidity challenges the sector is grappling with. The ease of liquidity can enable the buyers to make purchases and also support the idea of Housing For All. A real financial impetus to the real estate sector can come with a major overhaul in terms of GST relief and curtailing home loan rates. Rationalization of taxes and premiums is another area of improvement where stamp duty charges can be included in the GST rate. The sector needs a one-time subvention scheme and restructuring of realty sector loans. Real estate sector needs treatment like information technology sector where tax holidays and moratorium played a key role. Also, slashing of home loan rates will change the demand dynamics among the low, middle and higher-income groups. The Finance Minister should consider enhanced deduction tenure for taxation purposes, which will boost home buying. To ensure consistency and seamlessness, the Government will have to take steps and eradicate the hurdles from the course of growth of the industry.
The demand for co-working office spaces has seen tremendous growth in the last few years: Manas Mehrotra, Chairman, 315Work Avenue
The demand for co-working office spaces has seen tremendous growth in the last few years and is expected to further witness a spike in the near future. The easy environment along with affordability and flexibility in pricing options has attracted large enterprises and start-ups alike towards the co-working culture. Considering the popularity of co-working, the demand for the sector is expected to see a sharp rise in 2020 and beyond. However, we have some important expectations from the upcoming Budget 2020 to further propel the growth in the sector.
The government must provide more assistance to startups to be able to grow and provide tax benefit to Angels for investing in them. There is also need to reduce GST to the lowest slab for upcoming innovative startups as it impacts their budget. Apart from these, input tax credit under GST is an important issue that concerns the sector. The government has not enabled co-working firms to claim input credits on work contract and construction services supplied, as detailed under GST provisions. This would have checked the increased outflow of cash that co-working firms are currently experiencing. Co-working firms are also hoping that input tax credit under GST be extended to developers so that it could be passed on to companies who lease out space and thereby reduce their overall costs.
To enable more start-ups to opt for co-working spaces, an increase in the bank funding amount to them would be welcome. There is also a robust demand to lower the income tax slab for the employees of start-ups. Also, keeping in mind the minimal profits that they earn during the initial years of inception, increase in bank funding is expected to meet the financial crisis faced by the firms during these years. Income tax should allow the co-working space users to make a lower rate of TDS as the present rate of TDS is 10%, which impacts badly on the quick ratio of the co-working firms and hence, the co-working firms’ financial shape has become less attractive from a cash flow perspective.
Co-working culture, at present, is experiencing high growth trajectory in India. A single window approval approach is also required by coworking, instead of having to seek multiple approvals for the same business. Further, in order to expand from the metro cities to the tier II and tier III markets, added infrastructural push in these markets from the government would be appropriate. Overall, the co-working industry is looking at improvement in the ease of doing business. The government could assist in this a great deal by addressing regulatory concerns and by encouraging more coworking firms to open up through a series of both financial and non-financial incentives.
Hoping for reform measures to promote rental housing and Co-living: Anuj Khetan – Director, Vijay Khetan Group
The Union Budget 2020 is awaited with a lot of expectations by all stakeholders, especially for the real estate industry. The developers and buyers hope that the 2020 – 2021 Union Budget will introduce reforms like tax sops and correction in prices which will benefit and stabilize the industry.
The industry anticipates that the budget should address the long-term expectations for the industry in terms of status, single window clearance and reforms in the Goods and Services Tax (GST). Since, rental housing and co-living are in demand among the homebuyers, hoping that various reform measures are proposed to promote the same. The real estate market in India is also expected to address the liquidity crisis faced by the government potentially which affected various segments, However, taking all these into considerations, we expect 2020 to be more stable and propel the real estate growth.
A reduction in GST rates for ancillary industries will further help the real estate industry: Farshid Cooper, MD – Spenta Corporation
The pre-budget announcement of the Alternative Investment Fund to provide liquidity to stuck real estate projects will start to play out over the next couple of years. We hope that this will revive these cash strapped projects and therefore not only ensure that homebuyers finally get possession of their homes but also ensure that developers are able to recover capital that has been blocked for a long period of time. This will lead to reinvestment and subsequently growth. A reduction in GST rates for ancillary industries will further help the real estate industry in terms of lowering costs and leaving more in the hand of small to mid-size business in terms of cash flow management. Lastly, for the economy at large we hope that there is a reduction in individual tax rates. This will automatically kickstart the consumer market and have a ripple effect on job growth/job security.
Extending no tax upto an income of Rs.5 lacs to all taxpayers: Kaushal Agarwal – Chairman, The Guardians Real Estate Advisory
The expectation of real estate contributing 13-14% to the nation’s GDP by 2025 can materialize if the requisite support to this sector is extended starting this budget. Incentivising customers for purchase of real estate with a 50% reversal of paid GST could go a long way in helping boost demand alongside the much-anticipated change in tax slabs. A slight change in the second-highest tax slab of 20% could impact as much as 27% or 1.47 crore of individual taxpayers.
Expectations from Union Budget 2020:
1. Industry status for the Real Estate sector as a whole, currently the same has been accorded only to affordable housing. This is a long-pending demand and can help developers raise funds at lower costs.
2. The government needs to push the well-capitalized NBFC’s to extend liquidity to the sector and look at a resolution mechanism for the stressed NBFC’s and banks to enable seamless credit flow for developers and homebuyers.
3. The additional tax benefit for home loan interest announced in the previous budget now takes the tally to 3.5 lacs (Section 24 (b) & 80 EEA) for homes worth 45 lacs circle value. The same needs to be extended for homes costing upto Rs.1 crore to benefit the middle-class families residing in Metro cities.
4. The additional income tax benefit for home loan interest which was announced for home loans sanctioned between Apr 19 – Mar 20 needs to be extended for a minimum of 3 more years.
5. The period of exemption from levy of tax on notional rent, on unsold inventories, needs to be extended to 3 years from 2 after receiving the Occupation Certificate. This is keeping in mind the slow reduction in unsold inventory levels and lackluster demand for real estate assets.
6. The tax rebate on the development of affordable housing needs to be extended further to incentivize the development of affordable housing projects.
7. Extending no tax upto an income of Rs.5 lacs to all taxpayers.
8. Change in the second-highest tax slab of 20% could impact as much as 27% or 1.47 crore of individual taxpayers. This will leave more money in the hands of the taxpayers and increase their home loan EMI appetite.
9. Incentivising customers for purchase of real estate with a 50% reversal of paid GST could go a long way in helping boost demand alongside the much-anticipated change in tax slabs.
10. Increasing the standard deduction to Rs.75000 for salaried professionals will benefit not less than 2.3 crore salaried taxpayers.
11. The government should declare tax free, the rent income received from any one owned house across the country. The same will see the young, new age investor pour money in Real Estate.
Government should ensure land availability for Affordable Housing: Gaurav Gupta, President, CREDAI Ghaziabad
We are looking forward for the industry status to the real estate sector along with steps being taken in the direction of single window clearance under ease of doing business will tremendously help the sector. Also, it will be a perfect situation if the GST is revised for construction materials such as cement to make them more affordable. First of all, the income tax deduction under section 24 must be increase up to 4 lakh. The second most important aspect is the government should ensure land availability for Affordable Housing and the approvals related to the projects. Many times it’s make difficult for the developers to get them delivered within a stipulated time due to not getting timely approval. Therefore it should be mandatory to have a time-bound approval system in the sector. Apart from this, new technology is being used day by day to speed up the construction. Also, this budget must also aim at increase the present savings limit so that the young population of the country gets a higher spending power and look at real estate sector as an investment avenue.
Budget should address the issue of making cheaper land available in main cities: Pradeep Aggarwal, Founder & Chairman, Signature Global and Chairman, National Council on Affordable Housing, ASSOCHAM
Affordable Housing sector has been given the infrastructure status but the implementation has not been up to the mark. We hope that the announcements that were made last year regarding the investment towards infrastructure will get a clear picture for implementation. The Budget should also address the issue of making cheaper land available in main cities for the development of affordable housing. Apart from that income tax benefits are also expected to increase which will help in more investment in real estate, which in turn will help the economy.
We expect the Government to double the amount of fund allocation for Pradhan Mantri Awas Yojana. This will enable more people to realize the dream of owning a home and also help the Government in achieving the goal of Housing for All by 2022. Finance Minister will have to pay attention to the Input Tax Credit as well, otherwise it will be a direct hit on Affordable Housing as the house becomes even more expensive and will be away from the common man’s reach. Apart from this, Government should reduce the GST to single digit on building material like steel, cement etc as well as contractor service among others.
Finance Minister should consider a one-time loan restructuring for the sector: Mohit Goel, CEO, Omaxe Ltd.
The Government has announced several measures like stress fund for stalled projects, linking of home loan rates to an RBI approved external benchmark and additional tax deduction of Rs 1.5 lac to first time home buyers on homes up to Rs 45 lac. The Government also announced upfront recapitalization of PSBs so as to improve the credit flow in the economy. However, due to the downturn in the market amid NBFCs crisis, lack of confidence amongst homebuyers and banks wary of lending, we urge the Hon’ble Finance Minister to announce a one-time loan restructuring for the sector. This will speed up construction and once construction begins in a full swing, not just consumer confidence but also sales and overall economy will see an upswing.
Government should consider lowering the tax burden on individuals: Dhruv Agarwala, Group CEO, Elara technologies
In the last six months, the Government has taken several measures to boost the economy, some of which were particularly aimed at reviving the moribund real estate sector. Most of these measures are likely to bear fruit in the medium to long term.
Immediately, the biggest challenges confronting the real estate sector are liquidity and demand. While the Rs. 25,000cr stress fund/AIF that was announced earlier is likely to solve part of the liquidity crisis, there is an urgent need for a one time loan restructuring for the sector. This would provide significant relief to developers and lead to faster completion of projects. We hope that the Hon’ble Finance Minister announces that measure in the upcoming budget.
On the other hand, to push demand, the government should consider lowering the tax burden on individuals to put more money in people’s hands and also consider providing an additional tax deduction on purchase of a second house. This will help boost demand and lead to an overall growth in the GDP by driving up consumption.
Government should announce additional measures for improving liquidity situation via a dedicated window: Harinder Singh Hora, Chairman, Realistic Realtors
In 2019, there were two clear cut trends that emerged. The residential segment continued to struggle, while commercial segment thrived. As such, in the budget for 2020-21, we expect Hon’ble Finance Minister to announce some measures to boost residential segment. Increasing tax deduction limit and providing certain incentives on the purchase of second homes seems to be on the cards. We also expect Government to announce additional measures for improving liquidity situation via a dedicated window and one time restructuring on loans. Government may also incentivise REITs and InVits so as to develop a robust mechanism for funding to commercial segment.
Government should take initiatives towards resolving liquidity crunch: Yash Miglani, MD – Migsun Group
In this budget we expect the government to take initiatives to towards resolving liquidity crunch to ease the developers and buyers both. In the near past the government has allocated funds to complete over 1,600 stalled housing projects which came a great relief and to further provide the aid to the developers by making the process of paying back the money to the financial institutions and banks we expect the government to restructure the terms of interest and instalments of old loans given to the developers.
Budget should consider reduction in GST rates on construction materials: Kishore Jain, President – CREDAI Bengaluru
The budget announced for 2019-20 glorified affordable housing more than offering few taxing solutions for the home buyers. Long-term expectations like industry recognition for the sector, single-window clearance were not been addressed and discussed in the last budget. That is why, this year, most of the real estate developers are expecting that these important factors must get addressed so that the sector can reinvigorate. Even though the announcement of INR 25,000 crore has given some relief to the sector, homebuyers’ growing interest to buy a project will be a major boost to the sector.
Hon’ble Finance Minister Nirmala Sitharaman, during her first maiden budget, announced an increase of INR 3.5 lakh tax deduction cap on the interest paid on home loans approved for the acquisition of the first home purchase up to Rs 45 Lakh in the financial year. It is good that the government is promoting affordable housing to fulfil the promise of “Housing for All by 2022” under PMAY scheme. But the missing factor is the benefit for the middle-class population. The Government did not address the housing concerns of the mid-segment population apart from strengthening RERA. Therefore, developers are looking at tax and interest benefits for the mid-segment which will help in increasing the sales.
Reduction in GST rates on construction materials
Construction material cost is directly dependent on the cost of raw materials and procurement charges. Although the government has reduced GST rates for the affordable and under-construction buildings, the materials like cement (28%), sanitary items (18%), steel, doors, windows, electrical continue to pose a challenge due to the high GST rates. The industry requests the government to reduce the inputs and input services tax to 5% – 12%.
RERA to consider multiple tower projects as an ongoing venture till the completion
In an integrated township project, until the construction of all the towers gets completed, RERA should consider it as the ongoing project. This will help in maintaining the GST rate of under-construction projects.
Funding has always been a critical challenge faced by the realty sector in India. Due to the lack of appropriate funding received from banks, real estate developers are now approaching NBFCs, which also has crumbled recently. This has impacted the borrowing cost and easy access to credit availability. The government should make some fundamental changes which will further increase foreign investments and solve the liquidity problem in the sector.
Repo rate deduction
Although the repo rate has been cut 5 times in India, it has not been passed on to the buyers practically. Therefore, potential home buyers are not witnessing any reduction in home loans.