Budget wishlist: Real estate sector
The government has reduced the minimum size of built-up area for receiving foreign investment.
 "Budget wishlist: Real estate sector")
KEY DEVELOPMENTS
KEY ISSUES
EXPERT VIEW: Abhishek Goenka
Vice-chairman & Managing Director, Sobha Ltd
"There are multiple taxes and duties levied on developers during construction of a project. These are factored in while fixing the price of a unit and account for a substantial part of the total cost. We expect this Budget to look into the matter and rationalise the tax structure. It will benefit the market by reducing the overall construction cost and bringing down the property prices, thereby benefiting the customer"
- Foreign investment: The government has reduced the minimum size of built-up area for receiving foreign investment. It has eased exits by relaxing the requirement to a lock-in period of three years. Also, some clarity in investment norms has been provided. This has given foreign investors the confidence that they can exit after three years.
- Special dispensation: To attract larger investments through incorporated entities, special dispensation for NRIs has been extended to companies, trusts and partnership firms incorporated outside India and owned and controlled by NRIs.
- REITs: Sebi's real estate investment trust regulations permitted foreign investments in REITs. Subsequently, a tax regime for REITs was introduced in Budget 2014 and further amendments were made in Budget 2015. Also, the policy framework for external commercial borrowings permits REITs to raise ECB.
- Housing for all: The govt launched 'Housing for all by 2022' and approved a substantial rise in interest relief on loans to the urban poor. Across nine states, 305 cities have been identified for implementation of the scheme.
KEY ISSUES
- Funding: At present, developers face a challenge in accessing funds. The interest cost and collateral values are high. This is because real estate is not considered a priority sector for lending. The sector contributes significantly towards the country's GDP; it should be granted an 'industry' status so that developers are able to access funds at lower costs.
- Stamp duty: The cascading effect of stamp duty has been a major reason for non-registration of deals, as well as alternative conveyance options. The introduction of uniform stamp duty rates and stamp duty credit will reduce costs for the ultimate buyer and foster transparent deals.
- REITs still a challenge: With opening up of REITs to foreign investment, the market for REITs is available in India. But the tax regime has certain limitations. Capital gains exemptions currently available on transfer of shares of special-purpose vehicles should be extended on transfer of assets or interest in a firm. Further, DDT should not apply on distribution of profits by SPVs to REITs
EXPERT VIEW: Abhishek Goenka
PwC expert answers Business Standard readers' questions on what to expect from the Budget
ARJUN: What are the challenges for a govt infra project aimed at building basic low-cost houses that can serve as shelters to footpath dwellers?
A temporary arrangement may not be a good solution. For low-cost houses to be successful and sustainable, both development and throughput need to be speedy. There is a dearth of affordable and adequately sized land parcels in inner urban localities. This takes us to outer localities, but the challenge then is to provide a mass rapid transport system to enable people to commute to the urban areas. Also, high amount of taxes paid to get ownership hurts the cause of low-cost housing. The local development rules seem more attuned to premium housing.
ARYAN: Do you think the govt will increase the tax deduction on housing loans in Budget 2016?
Under the current provisions, a tax deduction is available on principal repayment of loan under Section 80C. This is capped at the overall limit of Rs 1.5 lakh. Additionally, deduction on interest paid is available, capped at Rs 2 lakh in case of self-occupied property. We believe there is scope to increase the limits in the Budget. Further, the income-tax laws provide a mechanism for claiming interest paid during the construction period.
ARJUN: What are the challenges for a govt infra project aimed at building basic low-cost houses that can serve as shelters to footpath dwellers?
A temporary arrangement may not be a good solution. For low-cost houses to be successful and sustainable, both development and throughput need to be speedy. There is a dearth of affordable and adequately sized land parcels in inner urban localities. This takes us to outer localities, but the challenge then is to provide a mass rapid transport system to enable people to commute to the urban areas. Also, high amount of taxes paid to get ownership hurts the cause of low-cost housing. The local development rules seem more attuned to premium housing.
ARYAN: Do you think the govt will increase the tax deduction on housing loans in Budget 2016?
Under the current provisions, a tax deduction is available on principal repayment of loan under Section 80C. This is capped at the overall limit of Rs 1.5 lakh. Additionally, deduction on interest paid is available, capped at Rs 2 lakh in case of self-occupied property. We believe there is scope to increase the limits in the Budget. Further, the income-tax laws provide a mechanism for claiming interest paid during the construction period.
Abhishek Goenka
Partner (Tax), PwC India
Partner (Tax), PwC India
Vice-chairman & Managing Director, Sobha Ltd
"There are multiple taxes and duties levied on developers during construction of a project. These are factored in while fixing the price of a unit and account for a substantial part of the total cost. We expect this Budget to look into the matter and rationalise the tax structure. It will benefit the market by reducing the overall construction cost and bringing down the property prices, thereby benefiting the customer"