The year 2017 was a landmark one in terms of policy directives. The real estate market witnessed a temporary setback on account of reforms like Real Estate (Development & Regulation) Act (RERA) and Goods and Services Tax (GST). However, after withstanding the aberrations, the market now seems to be settling down to the changes, which are envisioned to bring long-term benefits. The New Year has started with hopes of a market revival, especially on the back of positive policy roll-outs in the upcoming Union Budget 2018-19.
Every year, the Union Budget presents an opportunity to the government to work towards the revival of Indian real estate and address the looming concerns that afflict various stakeholders. Budget 2017 doled out several benefits such as infrastructure status to the affordable housing segment and lower interest rates for loans up to Rs 12 lakh, but 2018 awaits resilient steps to kick start the recovery phase.
The Indian realty industry stands at the cusp of restoration and announcements of reformatory measures to address high land costs, unsold inventory and tedious approval processes are instrumental for the turnaround of the sector.
In 2018, stringent action is required for renewal. Certain initiatives towards reviving the sector are critical in the short term. Here are some of them:
* Industry status: This is a long-pending demand of the real estate sector which is considered vital for its expansion. Accordance of an industry status will extend subsidies and tax exemptions that are required to uplift the sector. Availability of easier and cheaper funds to the real estate developers will be a major booster for the market.
* Increase in tax shields for home buyers: The Budget session must look into the various sections of the Income Tax Act to extend support to homebuyers and boost real estate investments. Under Section 80C of the Income Tax Act, 1961, the government allows tax benefit on savings up to Rs 1.5 lakh. Principal repayment of completed homes qualifies for tax deduction under section 80C. Extending this limit to Rs 2 lakh or Rs 2.5 lakh could make real estate investment more lucrative.
Further, under section 80EE of the Income Tax Act, first-time homebuyers can claim an additional tax deduction of up to Rs 50,000 every year. Some criteria need to be met by homebuyers to claim this deduction. The home loan should have been sanctioned during or after FY 2016-17, not amounting to more than Rs 35 lakh and the house value should exceed Rs 50 lakh. Additionally, the homebuyer should not have any other residential property in her name while buying the house. An increase in this tax exemption to a lakh or Rs 1.5 lakh would help incentivise first-time homebuyers and improve their home buying appetite.
Additionally, the government updated its rules under Section 24 last year and abolished the tax abatement on rental income by putting a cap of Rs 2 lakh for availing of tax benefit. This reduced the investment prospects of real estate since the rental income beyond Rs 2 lakh now attracts a heavy tax liability according to the income tax slab the individual falls in. An extension of this limit to Rs 2.5-3 lakh would boost new investments and improve the liquidity of existing investors in the sector.
* GST rate revision: Under-construction properties are charged GST at an effective 12 per cent. The change has suppressed demand for the segment which was already reeling under the pressure of project delays, hence deficient trust. Clarity and transparency on input tax credit and a reduction in the current GST rates would help rationalising the taxes and improving buyer sentiment. Further, the affordable housing sector needs to be freed of this burden and the government must reduce the GST slab on low-cost homes to five per cent.
* Simplifying REITs: While currently there are around over 900 properties worthy of Real Estate Investment Trusts (REITs) in India, not a single REIT is listed yet. Simplifying taxation norms for REITs will open will open doors for individual investors, who are otherwise able to invest in real estate property due to limited budget.
The author is the Chief Business Officer of 99acres.com