Over the last few years, the central government has liberalized investment norms and created a regulatory authority to revive the real estate sector. During the previous Union Budget, the government supported the vision to create affordable housing stock and reduce the housing gap by according ‘infrastructure status’ and extending sops to homebuyers under credit-linked-subsidy-scheme (CLSS). This year, as we approach Union Budget 2018-19, we expect similar reforms, beyond the populist agenda. The following are the recommendations for the real estate sector-
1. Incentivizing home buyers- To revitalize the housing market, first home buyers need to be incentivized. At present, a first homebuyer can claim an additional tax deduction of up to INR 50,000 per year for a loan amount less than INR 35 lakhs and for a house value less than INR 50 lakhs. This limit of INR 50 lakhs is on the lower side and would exclude a large chunk of homebuyers and such houses will be available only in peripherals of most metros. In the budget, the government should increase house price limit, and the tax exemption limit in accordance to the home loan taken. Additionally, the government should consider increasing the deduction limit of interest paid on home loan from INR 2 lakh to INR 3 lakh. This will give a push to homebuyers who are on the fence, and in the long run, clear inventory with developers.
2. Stamp duty removal for REITs- Since the government derives a large part of its revenue from stamp duty, removal of stamp duty charges may be a tough proposition. However, stamp duty charges can be lowered or standardized across states to give a relief to homebuyers. Also, with respect to REITs, while the government has resolved taxation issues such as dividend distribution tax, long-term capital gains tax on transfer of units have been resolved, we recommend that the budget consider exempting stamp duty for REITs. This exemption at the state level, even if for the initial few years, will go a long way in increasing the competitiveness of REITS in India.
3. Lower GST for realty sector- Currently the real estate sector does not come under the ambit of GST, although under-construction properties are levied a GST rate of 12%. We recommend that the government bring the realty sector under GST and also subsume stamp duty charges under GST. Besides RERA, this will help in bringing about transparency in property transactions.
4. Removal of MAT in SEZs- The exemption of Minimum Alternate Tax (MAT) was withdrawn in 2011, after which MAT was levied at 18.5% on SEZs. Levying of MAT negates the tax benefit that the companies can enjoy in an SEZ. Therefore, the government must review the tax regime of SEZs, to revive the SEZs and enhance their attractiveness, for occupiers as well as developers.
5. Push to Warehousing and Logistics parks- While the GST is proving to be a catalyst for the logistics and warehousing sector, incentives such as income tax benefits and higher FSI under Free Trade and Warehousing Zone (FTWZ) will spur development of modern warehouses. The sector is already seeing strong demand for warehousing space from FMCG and e-commerce sectors. Rising demand for space, and incentives such as higher FSI and income tax benefits will steer the interest of institutional investors in the sector, thereby leading to a more organized sector.
“The year 2017 has been an eventful year for the real estate sector as the government enforced RERA and GST which will lead to realignment of business models of developers, and thereby changed the dynamics of the real estate business. However, the market is saddled with high residential inventory and weak demand. At such a juncture, the upcoming Union Budget 2018-19 is crucial. To rejuvenate the residential sector, the government needs to further incentivize first-time homebuyers and bring real estate under GST at a lower rate. On the commercial office side, REITs will be a big game changer Additionally, the budget should also exempt minimum alternate tax (MAT) in SEZs to spur development activity and attract occupiers. Lastly, the logistics and warehousing sector, which has seen increased traction from PE funds and developers, will benefit from incentives such as higher FSI and income tax benefits. These reforms will go a long way in developing Free Trade and Warehousing Zones.”Anshul Jain, Country Head & Managing Director, India
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