With February 1, 2018 just about a week away, expectations are running high about the proposals our Finance Minister will be making in the Union Budget 2018. The year that just went by saw a number of regulatory changes made that the real estate sector is still trying to come to terms with.
The Goods and Services Tax (GST) Act has put in an additional cost pressure on real estate. Currently real estate falls under 18% tax bracket of the GST Act with 1/3rd abatement for land. However in key metros, the share of land is more than 50% of the project cost. It would do well if the government aligns this with market realities and accordingly increase the abatement for land to 50%.
Also, GST rates should be lowered for affordable housing projects to 12% with 50% abatement for land taking the effective GST rate to 6%. This will definitely provide a big boost to the government’s mission of housing for all by 2022. Further, housing under the MIG 1 & 2 categories should be brought under the affordable housing so that they too can avail the benefits and subsidies.
Homebuyers would also like to see reduction of stamp duty which presently ranges from 3 to 6%, varying across different states, as a result of which the consumer pays an additional amount of approximately 18% only in taxes to the government (including GST and stamp duty). The government should look at reducing this cost, rationalising and unifying stamp duty rates across the country.
From the developers' perspective there are two key expectations or recommendations from the Union Budget 2018-19 that can help the sector grow.
The government should promote single window clearance and smoother approval processes for real estate projects that will not only help the developers complete projects in time but also improves the country's ranking in terms of ease of doing business.
Secondly, grant of industry status to real estate sector. The housing sector is one of the key GDP contributors at (5-6% of GDP) and the second-largest employment generator in India after agriculture. Extending industry status to the entire sector can help developers raise funds at lower rates and, in turn, reduce their project costs which will help in pushing demand.
Additionally, there is a need to reduce the holding period for the Real Estate Investment Trust (REIT) investors. The REITs having more of an equity flavour, should enjoy similar benefits as those of an equity investment. The current three year period needs to be re-looked at in order to be at par with equity and as of today, the first REIT is yet to be listed in India. Simplifying the taxation norms for REITs is a critical requirement for listings to start flowing in, which will benefit the entire real estate sector by the enhanced participation of a much broader bandwidth of investors.