Pre-budget expectation quote from Mr. Anshuman Magazine, Chairman & CEO – India, CBRE
The Indian realty sector expects some more favorable SOPs and policies to be introduced by the newly re-elected government in this Union Budget 2019-20. Riding on strong regulatory mechanisms introduced in the previous term such as RERA (Real Estate Regulatory Authority Act), GST (Good and Service Tax) and Insolvency and Bankruptcy Code (IBC) and numerous initiatives for the affordable housing sector, the realty sector has made great strides and has witnessed an improvement in overall industry performance.
While the Modi-led government in its last term had introduced several reformative measures with the overarching aim to revive the sector, some measures are still awaited with respect to mitigating impending challenges related to fund raising, capital and liquidity. In addition to the grant of an industry status, the sector is also expecting the government to further ease ECB (External Commercial Borrowings) norms, so as to ensure steady in-flow of capital from foreign investors. Similarly, introduction of housing bonds, granting special status to HFCs at par with the banking sector, will further help in providing the much-needed fillip to the housing segment across all markets and geographies. For ambitious government welfare schemes such as the much talked about `Housing for All Initiative’ to be a reality, many of such reforms are pre-requisites.
Recommendations have also been made in terms of reducing corporate tax and an extension in the SEZ sunset. The sunset clause definitely needs an extension, especially in the midst of the anticipated impact of automation and technology on the IT sector. Withdrawal of any tax incentives from SEZs might hit exports and job creation. The government should also roll-out policies targeted at the developer community, while making adequate headroom for positive investor sentiments. In view of the recent NBFC liquidity crunch, there is an ardent need to increase bank funding to developers.
From a consumer perspective, buyers should be allowed cross purchasing. For instance, investors should be allowed to invest in residential properties from the sale proceeds of commercial properties and vice-versa. Also, the government should look at allowing investment in any number of properties from the proceeds of a single property, so as to further uplift the residential real estate market. Also, in view of high capital values, rental housing needs a push. Currently, there is a standard deduction from rental income under Section 24 (a) which is 30% of the Net Annual Value of the property. In order to incentivise rental housing, this deduction can be increased to 50% of the NAV.
Over and above these policy reforms, the Union budget should also expand its focus area on a holistic plan for infrastructure and housing development in peripheral locations and Tier II/Tier-III cities. For the creation of large-scale housing developments, tax benefits under Section 80-IA and Section 35AD (deductions to encourage private sector participation within the infrastructure sector) should be extended to integrated township projects by including the same within the definition of infrastructure facility. This would not only bring in the much-needed housing and infrastructural progression in these areas but will also help to generate employment. As one of the fastest growing sectors and the second largest employer in the India economy, these suggested reforms and new policies could further catapult the growth of the realty sector, along with the economy, through a more cohesive partnership between the Govt. and the real estate sector.