A case for realty to be given the industry status

Directly or indirectly, the real estate sector contributes to over 15 per cent of India’s Gross Domestic Product (GDP). It has been asking for industry status for quite some time now. In its absence, developers are forced to borrow at high interest rates and comply with a stringent evaluation process. Unavailability of funds at a reasonable rate of interest delays the construction process and increases the final cost of homes, negatively impacting the end consumer. Giving industry status to the entire real estate sector – instead of granting infrastructure status only to the affordable housing segment – would help in pushing the housing demand in India. We hope to see this announcement in the budget.

Single window clearance: For the real estate sector to really grow and execute its projects on time, various government approvals should be given in a timely manner. Developers have for long been demanding single window clearance to remove bureaucratic delays, which in turn delay delivery of homes. Research by RICS indicates that a single-window clearance system would drastically boost the real estate sector in India.

Interest on housing loans: Offer financial protection from project delays to home buyers. The deduction on interest of self-occupied houses is capped at Rs 2 lakh. For under-construction residential units, however, if the construction is completed after three years, then the deduction is just Rs 30,000. This three-year period starts from the end of the year in which the loan was taken.

Lately, there have been many delays in the completion of many housing projects beyond the three-year period. This has caused hardships to property buyers. To provide them some relief, the government may consider allowing interest deduction in such cases without the cap of Rs 30,000, and from the year in which the possession was due to the buyer as per the terms of the agreement.

Tax deduction on housing loan: The tax deduction limit of Rs 2 lakh on interest served on a housing loan needs to be raised, considering that most homes in the metro cities are priced at over Rs 70 lakh. This will help home buyers. Therefore, the government must increase tax deduction limit for housing loans. Also, tax concessions on house insurance premium could be introduced to encourage home buyers to insure their homes. Similarly, the tax exemption limit could be increased by about Rs 1 lakh and be auto-set to match inflationary trends in a financial year.

Simplified tax norms: We have not seen a single Real Estate Investment Trust (REIT) listing till date because of the presence of multiple taxes. Until tax hurdles are removed for developers and asset holders, it is highly unlikely that we will see any REIT listing. The government should recognise the capacity of REITs to improve market conditions for the real estate sector and remove the policies constraining their growth. The government should look at:
* Reduced level of taxation of REIT income
* Waiver of capital gains for the developer at the time of transfer of property into REIT
* Removal of service tax on lease premises.

Author: Sachin Sandhir is Global Managing Director, Emerging Business, Royal Institution of Chartered Surveyors

Credits Bangalore Mirror

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