IntroductionInIndia, real estate is the second largest employer after agriculture and isslated to grow at 30 per cent over the next decade. The Indian real estatemarket is expected to touch US$ 180 billion by 2020.The housing sector alonecontributes 5-6 per cent to the country’s Gross Domestic Product (GDP).
Theworld Bank forecast GDP between 7.7% and 7.8% for the financial year 2018–2019.(Indian Real Estate Industry: Overview, Market Size, Growth, Investments,IBEF). In the financial year 2017 -18, the Honourable Finance minister had granted infrastructurestatus to affordable housing projects. It is expected that the upcoming budgetwill focuses on infrastructure and affordable housing to boost the national GDP. Focus of real estate budget over the years (Last 3years of Modi Government) and expectation from the budget 2018 Duringthe last 3 years, the focus was shifted from other aspects to affordablehousing (given industry status) andinfrastructure development. Therefore it is expected to encourage private sectorreal estate developers and induce the much – needed push to complete the targetof “Housing for all by 2022” in the financial year 2018- 19.
“Ease of doingbusiness” should be given priority in the upcoming budget of India. ‘Industry’now will expect that Real Estate Sector should be given industry status aspriority for the budget 2018.The objective of ‘Housing for All’ will not beachieved only by the private sector or the public sector; rather it will be thepartnership model, which will help achieve this goal. From the industry’sperspective, ensuring the PPP model works will also require not just ‘ease ofdoing business’ but also require partnership approach in the real sense fromthe government.
It will enhance transparency in taxation, reduction in thecascading of taxes and real estate being completely brought under GST. Table 1 : Key highlights of thelast 3 years of Modi Government andFuture Expectation Issues Last 3 years of Modi Government 2018 : Budget Expectation 1) Affordable Housing 1) Infrastructure status to Affordable housing. 2) Announcement of eight new PPP models. 3) Housing shortage in urban areas has been reduced to about 10 million units from 2011 projection of 18.76 million. 1) Evolve a rental housing model. 2)Increase in allocation of funds to affordable housing. 3)Incentivise the use of modern construction technology.
4) Encourage design optimization vs reduction of area. 2) Real Estate Regulation Act 1) Under RERA, each state will have to setup regulatory bodies as appellate tribunals to solve the disputes between buyer and builder within 120 days. 2) Developer will have to put 70% of the money collected from a buyer in a separate account to meet the construction cost of the project. The buyer will pay only for the carpet area (area within walls). 3) Recently, government has decided for setting up of Central Advisory council for effective implementation of these act etc.
1) Allocation of funds for setting upon RERA regulatory body. 2) Incentivizing the governments that implement RERA efficiently. 3) Indirect Tax GST charge @12% on Under Construction property (excluding Stamp Duty & Registration charges). No tax is applicable on ready to move in properties. 1) It is expected in the budget 2018 rationalisation of the GST rates from the current 12 per cent to 6 per cent.
2) Bringing stamp duty under the ambit of GST. 3) Removal of GST on commercial leasing so as to benefit REITS and induce further investment in commercial real estate. 4) Removal of GST as applicable on long term lease of law and property, long lease to be treated as deemed sale.
5) Developers to get input credit on commercial building built for lease only, not sale. 4) Direct Tax ( including Expectations of Home buyers) 1) Corporate tax rate reduced to 25 per cent (for FY 2017-18) for companies whose total turnover or gross receipts of FY 2015-16 does not exceed INR 50 crore. 2) With respect to eligibility limits of 30 sq. meters and 60 sq. meters – built-up area has been substituted by carpet area as defined under Section 2(k) of Section 2 of the Real Estate (Regulation and Development) Act, 2016. 3) The income tax rate is reduced from 10% to 5% for tax slab between Rs 3,00,000 to Rs 500,000 for individuals. Any person whose income is above Rs.
5 lacs would now have a net tax saving of Rs. 12,500. 4) The loss from house property which could be set off against other income, to Rs.
2 lakhs. 5) Section 80EE of the Act provided an additional deduction of Rs.50,000 for first time home buyers whose housing loan was sanctioned during the period April 1, 2016 to March 31, 2017. 1) Removal of Minimum Alternate Tax levy on Special Economic Zones (SEZs) units and developers and also on affordable housing units. 2) Allowing FDI in an LLP engaged in real estate development and construction. 3) Housing loss set-off limit of Rs.
2 lakhs need to be increased for home buyers to Rs. 5 lakhs, no limit for 1st time home buyers. 4) The above property needs to be extended to first time home buyers with loans sanctioned beyond 31st March 2017. 5) Hike in HRA exemption limit is needed and tax incentives for first-time home buyers need to be hiked from Rs 50,000 to Rs 2 lakh. 5) Real Estate Investment Trusts 1) SEBI introduced REITs as a way to funding in the real estate sector. SEBI eased the funding norms for REITS and INVITs, allowing them to raise funds through debt securities.
2) A number of well known private acuity funds such as black stone groups, GIC and the Canadian pension board have planning to list REITS in 2018. 1) Extending individual LTCG benefits to REITS in terms of holding period i.e. 2 years. 2) Exemption from dividend distribution tax on any distribution to be distributed by an SPV to holding REIT company and to shareholders of REIT by the holding company.
3) No tax to be charged in case a property is moved into REIT. 4) No TDS to be deducted in payment of interest to any REIT holder by HUDCO. 6) Smart Cities 1) The project envisaged area-based interventions for developing urban areas or cities. Different cities are in different stages of processing, tendering and implementation. 2) According to the data presented by housing and urban affairs ministry, “Only 5.2% of the total identified projects have been completed with just 1.4% of the total envisaged investment of Rs 1,35,958 crore.
90 “smart cities” have identified 2,864 projects. 1) Introduction of TIFF financing for rising of fund to Urban local bodies. 2) Incentivising and penalising cities on utilization and non – utilization of fund responsibly.
7) Benami The real estate sector will get benefit from the amendments that were made late in 2016 to the Benami Transactions Prohibition Act. It will help in curbing malpractices and stopping the inflow of black money into real estate. It is expected in the budget that Benami Transactions Prohibition Act will be implemented and Aadhaar linkages will be compulsory for all property transactions. 8) Insolvency 1) A builder may file for a insolvency when he is unable to clear his debts once they become due. If a builder is declared insolvent, IBC provides two options – resolution or liquidation. 2) IBC also protect the interests of home buyers who have invested their savings to buy a house.
It is expected Government will gave more emphasis to Insolvency and Bankruptcy Code 2016 implementation. 9) Infrastructure and Real Estate The focus was more on infrastructure development and land monetization. 1) In order to fund infrastructure projects, government must focus on its land monetization by keeping realistic expectation from the management and acting as a facilitator to get required permission and sanctions in a speedy manner. 2) The government is likely to announce construction of more airports, roads, ports and other projects in the upcoming Budget. 10) Others Expectations 1) Push for implementation and digitisation of land records. 2) Implementation of the Enemy Property (Amendment and Validation) Bill.
3) Further push to TOD policy and infrastructure development, so as to increase connectivity and thereby bring more land under development so as to reduce land price. 4) Giving incentives to develop warehouses so as to aid in speedy implementation or GST. ConclusionThe year 2017 was an eventful one for thesector with many structural policy reforms, which resulted in a significantdecline in home launches to 1,03,570 units compared to 1,75,822 in 2016. It is expectedin Budget 2018-19 for relief measureslike lower taxes and infrastructure status.
It is also expected rationalisationof the GST rates from the current 12 per cent to 6 per cent. It is alsoexpected the Government should make land available at a cheaper cost of capitalto promote the affordable housing sector, Government policies should promoteSingle Window Clearance and Smoother Approval Process including EnvironmentalClearance within specified timelines and there will be reduction of LTCG Holding Period for REIT’s. Altogether,it is expected that Budget 2018 will be favourable for real estate sector.