First good news is “Allowing External Commercial Borrowing (ECB) for affordable housing translates into availability of capital for developers focusing on low-cost housing.”
This segment of housing is characterized by low margins, and it becomes attractive only if developers are enabled to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes.
Rohtas Goel, the chairman and managing director of Omaxe, says: “Affordable housing has been stressed upon in the Budget. The allowance of ECB for low-cost affordable housing projects will lower interest cost for developers. In order to ease liquidity, the government has also reduced withholding tax on ECBs for affordable housing from 20% to 5% for 3 years. Besides, 1% interest rate subsidy provided last year for loans towards affordable housing continues this year.”
The other good news is the exemption of proceeds from the sale of a residential property from capital gains tax if it is invested in equity or equipment of an SME – earlier the only route for exemption was purchase of another property or tax saving bonds.
However, with more reinvestment options, developers fear this could even result in a lowering of sales volumes in the secondary sale market. Lalit Kumar Jain, the national president of CREDAI says that the exemption of capital gains tax to invest in SMEs “may result in cash flows out of real estate”. The country needs infrastructure growth and the Budget has not disappointed on this front as well.
Sachin Sandhir, the managing director of RICS South Asia, says: “The doubling of allocation in infrastructure debt fund through allocation to NHDP, IIFCL, NHB and SIDBI coupled with full exemption from basic customs duty for equipment for road and highways construction are likely to boost infrastructure and construction sectors. Further, measures like credit guarantee and direct transfer of subsidy is likely to change the growth environment. One year extension of sun-set clause on tax incentives for infrastructure projects under 80 IA is also a welcome step.”
However, the bad news comes in the name of increase in service tax. Increase of service tax is a damper and developers bemoan that all the positives will be nullified by this step. The increase in the service tax rate from 10% to 12% is likely to increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users. With the increase in excise duty, the cost of basic inputs like cement and steel, furnishings, etc, will go up.
A significant part of sale value of a home consists of various taxes like excise, VAT, service tax, and stamp duty. Anshul Jain, the chief executive of DTZ India, says: “Increase in the service tax is going to further increase (marginally) the overall burden on the homebuyers of mid- and high-segment (housing units costing more than Rs 25 lakh). This will roughly translate into Rs 40,000 on home costing Rs 75 lakh. The silver lining is that the affordable housing, being part of negative list, is exempted from service tax.”
Pradeep Jain, the chairman of CREDAI and chairman, Parsvnath Developers, says that “no genuine” efforts are being made to encourage affordable housing, like bringing affordable housing under priority lending, according tax rebate under Section 80 IB (10), and the few positives are just a “last-minute window dressing”. This refers to the extension of interest subvention of 1% on housing loans by extending it to housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh.
Developers feel that this announcement is unlikely to have any major impact on demand across major Tier 1 cities like Mumbai, the NCR, Bangalore, etc, owing to the prevalent high property prices. However, affordable-housing segment in Tier 2 and Tier 3 cities may benefit from this concession.
Raising personal income tax exemption limit from Rs 1.8 lakh to Rs 2 lakh is being seen as nothing more than tokenism. It will have no significant impact on the aspiring Indian middle-class homebuyer. However, the 1% tax rebate for home loans of up to Rs 15 lakh on homes costing up to Rs 25 lakh will prove beneficial for developers in this segment.
Developers reeling under high-debt have felt a bit let down by the Budget’s announcements. They feel that they need some government support and consideration. Raheja says: “On one hand, there is demand and acute shortage of housing, while on the supply side the developers are interested but the environment is far from conducive. A developer has to fight the battle of clearances, land cost, input cost and on top of that, there is increase in service tax and excise duty, this is not reasonable.”
The real estate industry, which is under stress, was in immediate need of several concessions and support measures on easing of liquidity, relaxation of hightax structures and policy stimuli to facilitate a more congenial regulatory and development environment.
Om Chaudhry, the founder and CEO of FIRE Capital, says: “High costs of inflation and financing has choked demand and supply situation, which is leading to a significant demand glut and impacting the social living conditions, especially in fast growing areas. Raise in indirect taxes will definitely impact the cost of delivery of real estate and impact the overall demand. Further, shifts in tax slabs are too small to influence incremental demand.”
Industry status was another expectation of the sector. Gaurav Gupta, the spokesman of Raj Nagar Extension Developers’ Association, says: “Industry status has not been provided to real estate sector nor any mention on reintroduction of Section 80 IB. Housing, though amounting to around 5% of GDP, has not been given any significant impetus.”
Many feel that the Budget has carried forward the government’s cautious approach from the previous year. Anurag Mathur, the managing director of Cushman & Wakefield India, says: “The uncertainty over implementation of DTC was somewhat expected, as was the lack of firm commitment over FDI in multi-brand retail. The GST regime which is proposed to be implemented from August is a welcome step for modernizing the tax system.”
Navin M Raheja, the president of NAREDCO and CMD of Raheja Developers Ltd, says that this will make housing expensive. “The sector was looking for some relief from service tax. With the rate increase, the cost of construction will increase by approx by 0.5%.”
Source: The Economic Times
Global Creations is the first and only Centre of its kind in NCR of Real Estate. The Company is willing to adopt and adapt to changing situations and requirements of its client from all parts of the country. The Company has earned a respect for itself as property developers and property builders. We provide multitude of services to our clients in keeping with our Motto “Excellence is a Never Ending Journey” And, we strive to provide our clients with a quality of service which they expect and are used to. We, the team at
Global Creations work with zeal and enthusiasm to translate the dream of our clients into reality.
