10 Expectations From Union Budget 2017-18 For Real Estate Sector

In order to standardize construction inputs, there is a constant demand from stakeholders to raise House Rent Allowance (HRA) deduction. On the other hand, to boost the demand in reality sector developers are seeking more clarity on Goods & Services Tax (GST). With the belief to grow at a much higher pace, following are the 10 expectations from Budget 2017 for real estate.

Clarity on Beneficiaries under PMAY
Pradhan Mantri Awas Yojna (PMAY) scheme has been launched recently by the government to make home loans cheaper under affordable housing section of realty sector. Under the scheme, for loans up to Rs. 12lakhs will attract 3% of interest and 4% interest shall be charges on a principal amount of up to Rs. 9lakhs for home loan. But the clarity is still not provided if this benefit shall be restricted to the Lower Income Group (LIG) and Economically Weaker Sector (EWS) or it can be extended to young urban professionals who are looking to buy apartments. As the scheme is focusing on affordable housing which is largely available in Tier II and Tier III cities and some fringe areas of metros, will it get extended to the redevelopment projects within metros?

Clarity on Taxation of Joint Development Arrangements (JDAs)
The price of a residential unit gets inflated with the multiple taxation and uncertainty in the tax positions.  When it comes to assessing a project cost, land acquisition constitutes a major part of it which varies 30% to 60% depending upon the project’s location. It is expected that the budget 2017 will introduce appropriate guidelines on the treatment of JDAs that will help to provide leaner balance sheets to the developers.

Financial Protection from Project Delays
Since the previous budget could not provide any financial protection to the end users against the delays in projects, upcoming budget is expected to bring the same to an extent. For under construction residential units a deduction of Rs.30,000 is provided in case the construction gets completed after 3 years. This cap of Rs.30,000 for interest deduction shall be reconsidered by the government in case of delayed projects.

Removal of Section 50C and Section 43CA of Income Tax Act.
Section 43CA and Section 50 C are the special provision for full value of consideration for assets transfer other than capital assets under certain cases. Budget 2017 is expected to do away the deemed taxation based on the stamp duty valuation for business assets. Any understatement of the consideration shall not be made applicable in cases like distress sale of the property by bank to recover its dues or any other reason provided by the assessee before the authorities. It shall be tackled by the mechanism of investigation.

Granting Real Estate Segment an Industry Status
In the absence of industry status, the developers are constrained to borrow the money for their projects at relatively higher prices. Delays in construction processes are majorly contributed by the stringent evaluation processes and absence of reasonable interest rate for funds borrowing. Not only this inflates the cost of projects, it also widens the gap between demand and supply. By granting an industry status to real estate sector, as the cost of borrowing will come down to an extent thus resulting into pushing up the housing demand in India.

Single Window Clearance
One of the key reasons of a gap between demand and supply of housing in metropolitan cities is the difficulty in obtaining permissions for the construction projects ultimately extending the process of construction. There has been a constant demand from developers to remove bureaucratic delays with a single-window clearance regime. It will not only curb the delays in delivery of homes, but also boost the real estate segment.

Larger Incentives for First Time Home Buyers
With the launch of many home-buyer friendly schemes by the government, Budget 2017 is expected to bring some more relief to the first time home buyers thus making home-buying more affordable. As the last budget provided an exemption of additional Rs. 50,000 for a house worth up to Rs 50 Lakhs with a loan amount up to INR 35 lakhs which largely benefited the end-users in Tier II and Tier III cities, the expectations are quite higher from the upcoming budget. It is expected that a higher limit shall be introduced to the big metros as well.

Development of Real Estate Investment Trusts (REITs) Structure
Budget 2017 is expected to bring down the threshold period to qualify as long term capital assets holding from 30 months to 12 months in case of REIT units. Any capital gain arising out of the sale of shares or property REIT should be exempted from the taxation. All these initiatives no doubt will make REITs more attractive proposition and ultimately making it a successful structure. Across seven top cities, 325 million square feet is a ready REIT-able commercial stock with an estimated value of Rs. 3,700 billion to Rs. 4,050 billion.

Incentives for Developers to Construct More Commercial Units
In order to attract more foreign investments, the government shall introduce concessions to developers for the development of commercial spaces. The growth of commercial establishment also surges the demand for retail, residential and hospitality segments. With greater foreign investments, India will outshine as a business power house.

To Allow Developers the Fund Raising through External Commercial Borrowings
In order to reduce the borrowing cost of funds for developers, government should allow them to raise the funds through ECB. With this move as the borrowing cost will go down significantly thus leading to fall in the cost of construction which can be passed on to the home-buyers with the reduction of prices making housing units more affordable.

The Budget 2017 is also expected to extend some tax rebates for the projects which get delayed due to bonafide reasons with the aim of “Housing for all” by 2022. As the sector contributes approximately 15% of the nation’s GDP, the expectations are high from the budget to bring some relief to the segment.