It is interesting to note that a consumer survey conducted by IIMB-Magicbricks just after the general elections in May last year revealed huge rise in sentiments across 10 cities surveyed in India while two quarters further down the sentiment in these same cities had dropped drastically.
When it comes to the real estate sector, it all boils down to the paucity of land and price determination of the land parcels. Determining the price of a land parcel in our country leans heavily on general hearsay and vague estimates rather than following a scientific approach. Guidance values or circle rate revisions are arbitrarily revised with prevailing market values many times far exceeding these circle rates. This only leads to loss to the exchequer and a spurt in black money circulation.
With over 70% of property cost apportioned towards land, even the middle income segment finds it very difficult to afford property in major metros, let alone the low income segments. Our survey shows over 50% of respondents are waiting for prices to come down to purchase property.
The subject of affordable housing has been surprisingly ignored in this budget. An even more basic requirement, defining criteria for affordability by states or cities, was not addressed either. A brief mention of ‘Housing for all’ by 2022 without addressing affordability will only increase the mismatch already existing in the markets.
Granting infrastructure status to the real estate sector, a much anticipated move, was given a miss in this budget. The much-hyped interest rate subvention of low income housing loans did not find a mention either.
The introduction of the Benami Transactions (Prohibition) bill addresses domestic black money, specifically in the real state sector, and provides a major impetus for increasing transparency in this sector. The Finance Bill includes a proposal to amend the Income-Tax Act to prohibit acceptance or payment of an advance of Rs. 20,000 or more in cash for purchase of immovable property. This is a great step to curb black money in the real estate sector, specifically in land transactions. However, its fate should not turn out to be similar to the same bill passed in 2011 which never saw the light of day. Implementation and not lack of ideas is the key to our success as a country.
We need to wait and watch if rationalisation of capital gains tax for Real Estate Investment Trusts (REITs) and clearing pass-through status for rental income is going to have its intended effect.
Service tax increase from 12.36% to 14% is going to impact under-construction property with developers passing on this increase to consumers. Given the fact that the tax slabs and rates have remained untouched, consumers looking to buy property for residence will now think twice before investing in real estate.
Coming back to consumer sentiment, while the general investor sentiments have been soaring with Indian stock markets the best performing among emerging markets and business and investment communities highly positive about the economy, the real estate consumer has understandably not shared the same optimism in the past few quarters and is not likely to do so in the near future.
The author is with IIM Bangalore-Centre for Real Estate Research Initiative (IIMB-CRERI)
