What does Budget 2018 have in Store for the Real Estate Sector

The Finance Minister, Mr. Arun Jaitley proposed the Union Budget 2018 in Parliament. The major focus of the Union Budget 2018 was on agriculture and farmers, but the statement of the affordable housing sector made the real estate sector content too. The real estate sector visualizes the Union Budget 2018 as an impartial one with the main focus on affordable housing. However, real estate experts were of the opinion that the Union Budget 2018 will not have any direct impact on the sector as the expectations of concessions on GST for housing sector was not met overall.

Its long-deserved ‘industry’ status is yet to be received by the real estate sector; nonetheless, its influential presence was felt in the Union Budget speech. In a budget, which was otherwise an agri-focus budget, the honorable Finance Minister did not ignore the second largest employer in the country.

Some of the points, which were emphasized in the Union Budget 2018 related to the real estate sector are as follows:

HOUSING FOR ALL: One of the top priorities is still ranked as ‘Housing for All’. A dedicated affordable housing fund out of fully serviced government bonds would be established as announced by the government of India. This would bridge the funding gap and provide an access to alternative rather than a cheaper source of funds. The government also displayed its commitment in providing houses for the poor by sanctioning Prime Minister Awas Yojana (PMAY) scheme substantially in rural areas.

AFFORDABLE HOUSING: Certain players had taken the plunge into affordable apartments on Ferozepur highway without any special tax concessions. However, these Real Estate projects in Dhanbad could not reap the benefits of tax holidays under affordable housing project scheme due to a fixed advent date of June 1, 2016. An introduction of such projects in the affordable housing tax regime would have provided what is rightfully theirs.

DOUBLE TAX: Due to higher stamp duty value the real estate transactions have been facing undue hardship. The parties to the transaction were suffering tax on the difference between the transaction value and stamp duty value of the properties. In this regard, the government granted a 5% safe harbor taking note of this. This is an indication that the government is aware of the obstacles faced by the real estate sector. However, the meager 5% leeway may not be sufficiently pleased with the real estate players.

OTHER TAXES: The tax introduced last year on notional rent for unsold inventory came across as a cost burden for developers, having a ripple effect in the cost to the final consumers. Withdrawing from this tax could have much a desired correction in the costing.

The government of India had provided clarity on the tax impact on JDA partially last year, covering individual and HUFS. However, a complete rationalization (impact for all categories of the landowner) could have been brought in this budget.

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Taking away the exemption on LTCG tax for units of Real Estate Investment Trust (REIT), we are moving farther away from the reality of REIT.

Since the past 3 to 4 years, the growth rate of the real estate sector has been on the decline. The housing prices have been increasing in 72% of major 50 cities as per NHB’S residex index. With the recent inclusion of TDR within the GST net, this would only worsen the sentiments of the sector.

Some industry experts are of the opinion that the Union Budget 2018 brought little or no cheer at all for the real estate sector, which is already struggling with a credibility crisis, the impact of demonetization, regulatory reforms, and low interest. There was little in the budget that could stimulate demand. The Union budget 2018 did not provide any significant incentives to individual taxpayers with slabs remaining steady. There was no change in tax savings on home loans, nor were the 80c limits raised. This implies there would be no increase in “home buying appetite”.

According to the National Real Estate Development Council (NAREDCO), the real estate body mentioned 3 areas in the Union Budget 2018 that needed to change for the benefit of the real estate sector.

1.During his budget speech, the Finance Minister declared that there will not be a penalty if a property is valued at up to 5% below circle rates for calculation of stamp duty and capital gains tax. NAREDCO, however, hopes for the entire segment in the income tax act to be declined so that if a buyer “gets an apartment cheap (at any percentage below government defined rates), the segment does not penalize him.

2.NAREDCO, the real estate body wants taxation on vacant property needs to be dropped. A tax based on notional rent is charged if an apartment is lying vacant.

3.The real estate body’s third point deals with GST rates. When it comes to real estate investments in the form of stamp duties and GST, there is an entry and exit cost. The effective GST rate on affordable housing is now fixed at 8% while the rest is at 12%. For people to invest in real estate there is a need to bring down the rates to 6% “across the board”.

The real estate sector is considered as the largest employment generators and a major contributor to GDP. In order to uplift the overall economy, provide employment and create growth in consumption, it is imperative that the real estate sector is given a thrust in upcoming government policy measures including the budget. The recent decrease in effective GST rate to 8% from 12% on affordable housing comes as a good news for the entire economy as it will increase employment and consumption at a national level. However, the range of such tax rates should broaden and include houses that do not come under the realm of affordable housing. The Union Budget 2018 was received with a mixed reaction wherein the emphasis on affordable housing projects was a pleasant welcome, but the GST rates and other regulations would not prove any benefit for the sector.

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