Every year, the Union Budget presents the government with an opportunity to tweak the direction that the Indian economy is moving in. Sometimes, hard decisions are taken which, at times, do not necessarily go down well with everyone and, at other times, the budget is clearly meant to be a crowd-pleaser.
This invariably happens when an incumbent government is finishing its term and general elections are ahead.
The current government has done a lot for the Indian real estate industry, even when it was in the form of hard decisions like demonetisation and the disruptive, but very necessary, RERA.
With the hard decisions now taken, the sector fervently hopes that it is at the receiving end of the benevolence implied in a populist budget. This benevolence needs to go beyond improving the personal finance scenario and extend towards increasing investment in the sector.
Having said that, there are still several policy-related points where the coming Union Budget can make a decisive difference:
Single-window system
Why this still isn’t in place despite it being a very clear and dire need — even more so given the government’s dream of Housing for All by 2022 — is a bit of a mystery. The clearance and approval process for residential projects has been an impediment for a long time.
Although many initiatives have been taken to create a conducive business environment in the sector, the demand for a single window clearance mechanism is yet to be fulfilled.
If implemented, the system can significantly reduce the overall project cycle time and developers will be able to focus on their core business of project execution. Post-RERA, it has become all the more important to facilitate smooth clearances and approvals so that there are no execution delays due to procedural hindrances.
Industry status
Real estate is one of the key GDP contributors and the fourth-largest employment generator in India. Extending industry status to the entire real estate sector will help developers to raise funds at lower rates and, in turn, reduce their project costs — which will help in pushing demand.
Additionally, the inclusive growth of the realty sector in the country will help in generating employment across various sectors which are directly or indirectly related to it.
Tax for REITs
As of today, the first REIT is yet to be listed in India. Simplifying the taxation norms for REITs is a critical requirement for listings to start flowing in, which will benefit the entire real estate sector by the enhanced participation of a much broader bandwidth of investors.
Higher tax benefits
Yes, this always matters for the residential segment. Currently, a first-time home buyer can claim an additional tax deduction of up to ₹50,000 per financial year under section 80EE of the Income Tax Act, provided certain conditions are fulfilled. Tax exemption should be increased so as to incentivise first-time buyers.
Reduction in GST rates
As of now, under-construction properties are levied a GST of 12%, which is significantly higher than previous taxes.
The government should strive to make GST a tax-neutral proposition so as to help in reviving demand in the real estate sector. Clarity and transparency on input tax credit will also help in rationalising the taxes.
Incentives to go green
They are the indisputable need of the hour in India’s deteriorating urban environment, but the marginally higher cost of construction of green buildings has kept a majority of developers away from such projects.
Keeping in mind present and future challenges to the environment, the government should encourage developers with higher incentives in terms of FSI or tax breaks to encourage green building technologies.
The writer is
Chairman, Anarock
Property Consultants
