Budget 2019 expectations: Give 'Industry Status’ to real estate; take aggressive measures to mitigate stress, demand experts

Budget 2019 demands: The real estate industry has been facing through some rough weather given the tough demand environment, which got aggravated further with the recent NBFC crisis. Experts think that a much-needed impetus is required from the Union Budget 2019 to help the fortunes of the sector get a turnaround.

Shishir Baijal, Chairman & Managing Director, Knight Frank India, said that the finance ministry should consider giving 'Industry Status' to the real estate. "Real estate is one of the major contributors to the economy. Despite such strong fundamentals, the government does not recognise real estate as an industry. It is time that real estate gets industry status. This will enable developers to raise funds at lower rates and reduce their cost of capital which would eventually have a bearing on overall project cost," said Baijal. 

He said that the single-tax regime in India has ushered in additional cost pressure on real estate.

"Presently real estate falls under the 18% tax bracket of the Goods and Services Tax (GST) Act with 1/3rd abatement for land taking the effective tax rate to 12%. 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% thereby bringing down the effective tax rate to 9%," he said.

Baijal added said that the Centre should also revisit GST on affordable housing and rules for the abatement of land. 

"Housing for all by 2022 is one of the pet projects of the government and it wants to deliver 10 million houses under this program. The current GST rate of 12% coupled with 1/3rd abatement for land, making it an effective GST of 8%, is adding huge upward pressure on the overall cost of a house. We recommend lowering the GST rates for affordable housing projects to effective 6% by enhancing the abatement for land to 50%," he said.

He also said to augment the house purchase decision and provide some fillip to real estate sales, the Centre should carve out a separate annual deduction of Rs 1,50,000 for the principal repayment under Section 80C of the Income Tax Act.

Khushru Jijina, Managing Director, Piramal Capital & Housing Finance, said that the government needs to take aggressive measures, albeit temporary, to mitigate stress in FY20. 

"The credit crisis within NBFCs delivered a major blow to the real estate sector significantly paring its access to funds. The Government needs to take aggressive measures, albeit temporary, to mitigate stress in FY20. To stimulate housing demand in FY20, the budget should aim at policies to reintroduce income tax deduction on principal and interest on a second home loan. In addition, Income tax deduction limit on interest paid should be hiked to Rs 5 lakhs especially in Tier 1 cities. Similarly, IT deduction allowed on principal paid should be increased," said Jijina.

He also said that given the stress the NBFCs and HFCs have undergone, the finance ministry should come up with a financial package for the sector to restore growth in FY20. 

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Ashish R Puravankara, Managing Director, Puravankara Ltd, said that he hopes the government expands its gambit of incentives beyond affordable segment to the industry at large in the Budget to further amplify the momentum displayed in 2018.

He listed some of the key expectations from the budget 2019: 

1. No cap for loss from house property: The limit set-off for loss from house property of 2 lakh should be removed
2. A roadmap to execute the ‘infrastructure status’ afforded to the industry in the previous budgets.
3. Further extension should be given for availing benefits falling under Sec. 8O-IBA for Affordable Housing Scheme / Housing For All
4. Abolition of GST payable by the landowner in a Joint Development agreement
5. Abolition of tax on the unsold inventory