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The latest national budget has given
India's realty sector a short shrift, despite its stated objective
to create conditions for growth, focusing on domestic-driven
growth recovery. It has sadly even ignored the prescription given
by the Economic Survey for 1011-12 that has projected the share of
the country's realty industry to grow from 5 percent to 6 percent
soon. What is really disappointing is that barring some window
dressing, the budget has not taken any concrete measures to
address the twin crucial issues of increasing supply and boosting
demand. This was the primary requirement given that the industry
has been reeling under high property prices, liquidity crunch,
costly debt, muted foreign capital inflows, increasing inflation
coupled with low business sentiment.
Today, residential properties, principal demand driver for real
estate remains restrained with key indicators like sales and
absorption hit by high prices, spurred by increasing inputs and
debt costs. This is clearly evident from the industry statistics
showing almost 50 percent of unsold inventory in top cities like
the National Capital Region, Mumbai and Bangalore. So much so that
even affordable housing has been facing a slow down.
In this backdrop, the real estate sector that is under stress
required a booster dose in terms of fiscal incentives supported by
enabling development and regulatory environment. But that has
clearly not happened in the budget.
Liquidity crunch has been the bane of real estate but budget has
not addressed this serious issue of low bank credit flow and high
funding cost. The long pending demand of the sector for granting
industry status and giving infrastructure status to big township
projects has been ignored, denying easy credit access at cheaper
rates.
High property valuations are having negative impact on flow of
foreign capital especially as investors abroad are already wary of
ambiguous policies and lack of transparency in real estate
transactions in the absence of a regulator. And the budget has
done nothing to liberalise such investment and exit norms. The
brakes on foreign equity in multi-brand retail will further retard
the growth of retail real estate.
The budget does not hold much hope with high home loan rates
contributing significantly to slow down in housing demand. The
recent cut in cash reserve ratio by the Reserve Bank of India (RBI)
does not mean anything unless interest rates are cut ? by at least
1 percentage point in home loan rates to boost demand. Also no
attempt has been made to increase loan to value ratio or housing
loans, especially when the recent RBI directive has excluded stamp
duty, registration fee and other levies for total home cost,
thereby bringing down the value from 80 percent to 70-75 percent.
Moreover the much expected increase in the Rs.1.5 lakh cap on
interest payment and Rs.1 lakh cap on principal home loan amount
has not happened in the budget, thereby dampening the spirit of
home buyers. Though the budget has a proposal to set up Credit
Guarantee Trust Fund to ensure better flow of institutional credit
for housing loan may be useful in the long run, it will however
have no immediate impact on the housing loan scenario.
There is a major hurdle to the growth of real estate due to high
taxation structure, which in the residential segment, amounts to
30 percent of the total cost of the home. This calls for a viable
tax structure by way of rationalisation of goods and service tax,
stamp duty, service tax and local levies. Even 1 percent tax
deducted at source has been imposed on property sellers on
transactions worth Rs.50 lakh in big cities and Rs.20 lakh in
smaller cities.
But instead of providing any relief, the budget has further hiked
the service tax which together with increase in excise duty, will
further push up property prices, thereby dampening demand. The
exemption on capital gains tax on property, if proceeds are
invested in small and medium enterprises may be of little use. No
tax benefit or incentive has been given in the budget to cover up
high cost of green buildings with a view to give fillip to green
realty. Nor has it looked at duty structures to ensure that middle
and lower income housing is not a revenue source.
With housing for all a tall order for the government in view of
about 25 million shortage of low cost housing, the government has
rightly put focus on affordable housing in the budget. Allowing
borrowings from overseas for low cost housing, extension of
interest subvention for one more year for loans up to Rs.15 lakh
on property cost up to Rs.25 lakh, service tax exemption on low
cost mass housing up to 60 sq mt and Rs.4,000 crore fund for rural
housing are the steps that will give a boost to affordable
housing.
Even on the infrastructure front, budgetary provisions like
external commercial borrowings for road, power projects, Rs.60,000
crore allocation for infrastructure projects, Rs.5,000 crore for
creating warehousing facilities and one year extension of sunset
clause on tax incentives for infra projects are growth-oriented
moves.
However there is no policy initiative to boost rental housing.
Also in view of rise in affordable housing cost, property price
cap of Rs 25 lakh should have been increased to benefit homebuyers
in Tier I and II cities. Moreover, the budgetary provision to
bring affordable housing under priority sector lending would have
gone a long way in giving much needed push to affordable housing.
All in all, with marginal increase in income tax limit and with
additional burden of service tax and excise duty further bringing
down disposable and investable income, it may well prove to be a
setback to demand, with budget bringing hardly any cheers to
realty.
Vinod Behl is editor
of Realty Plus, a real estate monthly. He can be reached at
vbehl2008@gmail.com
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