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The previous annual budget presented
by Finance Minister Pranab Mukherjee failed to come up with some
substantial measures to boost the realty industry, especially the
housing sector. With the realty industry still not out of the
woods, stakeholders are eagerly awaiting this year's budget to
crack the frozen property market.
Limited access to funds, increasing cost of debt to both
developers and property buyers and high construction cost had
played spoil sport last year. Even the new year started with a
negative outlook for the real estate sector due to weak overall
demand and high construction costs.
The recent Estate Report by Knightfrank, stating that around 44
per cent of housing units under Rs.35 lakh are unsold in top seven
cities, is a sad commentary on the affordable housing which is
considered to be a key to real estate revival.
The cash-strapped and debt-ridden developers are eyeing budgetary
incentives like including land and building cost in capital
expenses to undertake social housing to address the huge gap
between demand and supply.
The Finance Ministry has a long-pending demand to promote special
residential zones (SRZs) through tax incentives and liberalised
floor area ratio (FAR) to make affordable housing a viable
business proposition for developers who complain of squeezed
margins.
On the funding front, cheaper and easier bank financing and policy
measures to help developers access private and international
credit through insurance and pension funds and external commercial
borrowing (ECB) will go a long way in giving much needed momentum
to the real estate sector.
Finalising guidelines for real estate trusts and mutual funds and
opening up of external commercial borrowing in real estate will
reduce cost of funds and ease property prices, thereby boosting
affordability. There is a case for setting up of a dedicated
affordable housing fund to facilitate lending at low rates to
developers of low-cost housing.
Foreign investors are keen to fund real estate projects including
affordable housing projects but at the policy level, there's a
need to liberalise norms for repatriation of foreign direct
investment.
During 2011, besides prohibitive home prices, high home loan rates
have also been responsible for steep decline in home sales
including that for affordable housing segment. Though post-budget,
interest rates are expected to come down in view of the central
bank's new credit policy, there is a case for liberalising
priority lending by further raising the home loan limit beyond
Rs.25 lakh to benefit the buyers of affordable homes in metros.
Similarly, one expects that the budget should seriously look at
substantially hiking the tax bar of Rs.1.5 lakh in view of the
steep hike in home prices. And existing home loan takers should
also derive the benefit of subvention in the interest rates
enjoyed by new home loan seekers.
The loan-to-value for affordable, low-cost homes needs to be
raised. But the recent instructions of the RBI to banks to exclude
stamp duty, registration fee and other levies from total cost will
further bring it down from 80 percent 70-75 per cent, thereby
burdening the home buyers to arrange for extra up-front money.
But the good news is that the National Housing Bank (NHB) aims to
provide better loan-to-value offer through its joint venture
mortgage guarantee company which is expected to become operational
by the second quarter of 2012-13. The company will provide
guarantee to banks and housing finance companies. And such home
loans backed by guarantee will ensure enhanced credit availability
at lower interest rates to home buyers.
There's a major hurdle to the growth of real estate due to high
taxation structure. In the residential segment, one-third of total
value of homes comprise taxes. There is a strong need for a viable
tax structure by way of rationalisation of levies such as foods
and services trax, stamp duty, local levies and service tax. Tax
relief on rental housing by lowering tax rate and tax slab and tax
exemptions to affordable housing are other measures which can
provide a fillip to the housing market.
Further an effective roll out of new Direct Tax Code (DTC) planned
for the coming fiscal should simplify and improve the tax system
by way of removing distortions in the tax structure and expanding
the tax base. This could in turn boost the confidence of investors
to invest in real estate projects.
A host of policy initiatives like allowing foreign investment in
multi-brand retail, extending external commercial borrowing limit,
providing infrastructure status to townships, cheap finance,
streamlining building approvals to prevent cost overruns,
introducing real estate regulator, facilitating affordable land
for low cost housing, reduction in minimum alternate tax for SEZs
and measures to boost skilled manpower may go a long way in
putting the real estate on fast track.
Considering the rising challenge of urbanization, the budget
should address the serious issue of augmenting urban
infrastructure. One can expect a revamped urban renewal mission
for integrated urban development, keeping in view that only 20
percent of the huge funds earmarked for this mission were utilised
during the 11th plan.
As a new policy initiative, a base level reform agenda for
capacity building in initial phase followed by incentive reform in
the second phase may well give a new thrust to the mission.
Another major policy push in the form of incentivised
public-private partnership is required to successfully implement
the government's ambitious plan to make India slum-free by 2014.
Vinod Behl is editor of Realty Plus, a real estate
monthly. He can be reached at vbehl2008@gmail.com
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