Reeling under the impact of demonetisation and a number of regulatory reforms in the last year, the real estate sector was expecting the Finance Minister to drive its blues away with suitable proposals in the Budget of this year. But nothing of that sort has happened.
Anuj Puri, Chairman of ANAROCK Property Consultants, feels the Budget does little to stimulate demand. No changes have been made in tax savings on home loans, nor have the 80C limits been raised. This implies there would be no increase in "home buying appetite".
Real estate sector body National Real Estate Development Council (NAREDCO) on Friday expressed similar disappointment and mentioned three areas that needed to change for the sector to build "a surplus" that would ensure both housing for everybody, and more importantly, choice for the buyer.
1. During his Budget speech, Finance Minister Arun Jaitley dedicated a para to 'circle rates' or minimum rates at which a property has to be registered in case of its transfer. The rates are fixed by state governments and the objective is to "penalise" buyers when assets are disclosed at an under-valued rate. Developers say that some state governments are prone to fixing an artificially higher circle rate. The Finance Minister on Thursday said: "Currently, while taxing income from capital gains, business profits and other sources in respect of transactions in immovable property, the consideration or circle rate value, whichever is higher, is adopted and the difference is counted as income both in the hands of the purchaser and seller. In order to minimize hardship in real estate transaction, I propose to provide that no adjustment shall be made in a case where the circle rate value does not exceed 5% of the consideration." In other words, there wouldn't be a penalty if a property is valued at upto 5% below circle rates for calculation of stamp duty and capital gains tax. NAREDCO, however, wants the whole section in the Income Tax Act to be dropped so that if a buyer "gets an apartment cheap (at any percentage below government defined rates), the section does not penalise him".
2. NAREDCO President Niranjan Hiranandani said that taxation on vacant property needs to be dropped. A tax based on notional rent is charged if an apartment is lying vacant. "We are being asked to create a housing surplus. There will be vacant flats when you create surpluses," he said.
3. The real estate body's third point has to do with GST rates. There is an entry and exit cost when it comes to real estate investments in the form of stamp duties and GST. The effective GST rate on affordable housing is now fixed at 8 per cent while the rest is at 12 per cent. Hiranandani said there is a need to bring down the rates to 6 per cent "across the board" for people to invest in real estate.