Income tax benefits to help clear unsold homes; builders may cut prices

New Delhi, Nov 12 (PTI) Home developers facing liquidity crunch may reduce rates to clear their unsold inventories following the government providing income tax relief, realty industry said on Thursday even as they pointed out that overall housing prices are unlikely to come down as builders are already working on thin profit margins.

The government on Thursday relaxed income tax rules to allow primary or first sale of housing units of up to Rs 2 crore at a price that can be 20 per cent below the stamp duty circle rate.

Currently, the law restricts differential between circle rate and agreement value at 10 per cent.

This relaxation, which is applicable till June 2021, is aimed at helping builders clear their unsold stocks, which is estimated at around 7 lakh in major 7-8 cities.

"We do not anticipate overall reduction in housing prices. Rates are already low and margins are low. But, the income tax relief will allow those developers who are facing liquidity challenges to clear their unsold inventories by reducing prices," CREDAI National Chairman Jaxay Shah told PTI.

He said the housing prices have already gone down below circle rates in some areas due to COVID-19 pandemic.

Realtors bodies CREDAI and NAREDCO had earlier said that because of the existing IT rules, builders were unable to reduce rates. Many central ministers had advised real estate players to cut rates to boost sales.

NAREDCO and ASSOCHAM President Niranjan Hiranandani welcomed the tax relief.

"Differential above 10 per cent between circle rates and agreement value translates into tax penalties under Section 43CA of IT Act. This has been a major stumbling block for price rationalisation. This pinches, especially when it comes to liquidating unsold inventory. Industry bodies like NAREDCO have been pointing out the urgency with which this needs to be sorted out, and the Hon'ble Finance Minister, in a limited-period offer has enhanced this differential from 10 to 20 per cent. This is welcome," he said.

However, he suggested that the price cap of Rs 2 crore should be enhanced and commercial real estate transactions to be included.

Anshuman Magazine, Chairman and Chief Executive Officer- India, South East Asia, Middle East & Africa, CBRE said: "Income Tax relief for developers and home buyers will encourage transactions and attract first time homebuyers."

He also welcomed an additional outlay of Rs 18,000 crore for PM Awaas Yojana(urban), saying it was a step in the right direction towards Housing for All.

Anarock Chairman Anuj Puri said: ?The increase in the differential between circle rates and agreement value - from 10 per cent to 20 per cent (under Section 43CA) - is indeed a good move. This offer will benefit both developers and homebuyers."

For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts, he said, adding that the move would help builders clear unsold stock.

As per ANAROCK Research, there are approx. 5.45 lakh unsold units across the top seven cities priced up to Rs 1.5 crore while 49,290 units in Rs 1.5-2.5 crore range.

JLL India Country Head and CEO Ramesh Nair said: "This comes as a significant benefit for both buyers and sellers as it will reduce and rationalise tax outgo to a great extent. Developers will now have the incentive in the form of this revised tax provision to pass on the benefit of lower market prices to buyers without incurring additional tax liability under the erstwhile provisions."

Piyush Bothra, co-founder and CFO Square Yards, said the increased outlay under PMAY (U) coupled with the increased gap vis-a-vis the circle rate of 20 per cent would give a significant boost to real estate sales especially in the mid to low price brackets.

Mani Rangarajan, Group COO, Housing.Com, Makaan.Com & PropTiger, said the residential real estate will get a boost from the tax relief as the government has decided to increase the differential of circle rate and actual price from 10 per cent to 20 per cent for the sale of residential units of value up to Rs 2 crore.

"This relief will help the real estate sector to clear the unsold inventory, which is hovering at around 7,23,060 units as on September 30, 2020 in the top eight residential markets," he said.
Knight Frank India CMD Shishir Baijal said the increase in circle rate and transaction value threshold from 10 per cent to 20 per cent will remove a transaction hurdle and save tax.
Gaurav Karnik, Partner and National Leader- Real Estate, EY, said the leeway of 20 percent between stamp duty circle rate and the prices at which the developer would like to sell the houses should help liquidate inventory held by developers especially in places where circle rates have gone beyond the market rates.

"Where the circle rates are in line with the market rates it also provides an opportunity for developers to reduce the price and liquidate the inventory," he said.
KT Jithendran, CEO, Birla Estates, said this step has provided the much-needed relief to the industry and will definitely propel greater growth in the coming months.

"It is a win-win situation as the reforms will allow developers to drive faster and profitable conversions on unsold inventory and make room to focus on further expanding the business, as well as, infuse affordability for homebuyers in the form of income tax relief," he added.

Manju Yagnik, Vice Chairperson, Nahar Group said the tax relief will incentivise first time home buyers and fence sitters to enter the market.

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Hemal Mehta, Partner, Deloitte India said this will give protection to both buyer and seller in the primary sale from the deemed tax which both were liable to pay if the transaction price was lower.

Ram Naik, ED, The Guardians Real Estate Advisory, said the major part of the unsold inventory in metro cities is upwards of Rs 2 crores. "A blanket announcement without the capping would have led to cheers for developers across the sector and the customers, this Diwali.