Indian Real Estate Sector Needs Infrastructure Status

Indian Real Estate Sector Needs Infrastructure Status

Real estate can make a big difference to the economy and it is important that the government provides the required impetus to the sector to improve national growth rates, given that there is such a huge unmet demand. Some critical catalytical steps can give exponential growth to the real estate industry and these are essential for long-term sustainable development of the sector. The government must enable the private sector to venture aggressively into the real estate sector, particularly in low-cost housing, if the huge demand-supply mismatch due to rapid urbanization has to be bridged. Currently, there is a shortfall of over 26 million houses in urban areas, developers and consultants say. According to one study, India needs to construct 10 million houses every year to meet the existing shortfall, and also to address the future needs of urbanization. To make the sector viable for the private sector, developers have been demanding that the housing sector be accorded infrastructure status.
Infrastructure projects primarily get two advantages which are not available to housing projects. Infrastructure projects are eligible for tax incentives under Section 80-I(A) of the Income Tax Act, where income from infrastructure projects is exempt from income tax subject to certain conditions. At the same time the provision enables them [infrastructure projects] to avail loans easily and at low interest rates.
It is expected that with the change in classification in income tax, and under the RBI norms, the same advantages of tax breaks and cheaper funding would be available to housing as well. This in turn will enable developers to increase their output and also pass on these benefit to the customers in a competitive environment.
Interestingly, till 1999, the housing sector was bracketed under infrastructure projects. Not only this, all the housing projects, which were approved by the authority till March 2008 and whose construction would be completed by March 2013, have been given special status under Section 80-IB(10). Under this provision, 100% deduction of profits from developing and building housing projects on a minimum area of 1 acre and housing units of built-up area of 1,000 sq ft at Delhi and Mumbai and 1,500 sq ft at other places, was available to developers, explained another developers’ association, Naredco, in its memorandum to the government.
If the infrastructure status is not granted to the housing sector and the present situation persists, developers will have to continue to rely on high-cost NBFC or high net worth individual (HNI) investment funding, both of which cost upwards of 20% per annum.
Section 80-IB(10), which otherwise will cease with effect from April 1, 2013, should be revived and completion time of projects sanctioned in 2008 extended to March 31, 2013, in view of hardships being faced by developers.
Affordable housing remains a segment where government should definitely continue to provide developers with tax free status, which was available earlier. Rather than restricting it to unit sizes, government should restrict the prices at which these units can be sold. Affordable housing developers need to be given incentives for creating such an infrastructure in the country.
Policy initiatives that can address the issue of crumbling infrastructure in existing cities and serve as a guiding light to create new cities will relieve the heavily burdened metro and Tier I cities. It is essential to forum late budgetary policies with a vision and a plan for the next 10-15 years, to cope with the demand for increasing urbanization. It is important to relieve the main cities of the population burden and also to bring planned infrastructure to the people.
Besides granting infrastructure status to the housing sector, developers demanded a slew of benefits to bring vibrancy to the sector, which affects over 200 other sectors of the economy.
The real estate sector is a major contributor to the GDP of the country and has emerged as an important employment provider. The sector has also contributed in building the infrastructure across the country and thus has put the country on the global map. In spite of all this, the long pending demand of this sector to be granted infrastructure status has not been met by the government. This year also, the real estate sector expects that its foremost expectation would be looked into by the government and the sector be declared as an infrastructure sector in the forthcoming Budget 2013.
Other factors which should be considered in the forthcoming Budget 2013 are increase in the rebate on housing loan interest and increase in income tax rebate on housing loan interest.
There should be a provision to reduce the tax rate on long term capital gains on transfer of house property. Scope of the provision of Section 54 should be broadened by allowing capital gains exemption as long as the entire capital gain is invested, whether in one or more houses.
Income tax benefit should be given to the buyers directly as a tax break from their personal taxes to encourage and promote purchase of housing in the low- and middle-class and affordable-housing segment. Stamp duty needs to be brought down further to 4-5% and made uniformly applicable across all states. Also, if stamp duty has already been paid on one transaction, there should be a mechanism to provide concession or a system of credit for any subsequent transactions. This would avoid the resultant cascading effect of stamp duty, thereby reducing the cost of transactions. The concept of credit for taxes paid on subsequent transactions already exists in other statutes like CEN VAT, VAT, MAT, etc.
Also, if buyers get some relief in tax, say if tax deduction under Section 24 of the I-T Act can be increased to at least Rs 5 lakh per year, it would be very helpful for the revival of the sector.
The real estate sector is at a very important phase of its growth and contributes enormously to diverse industries. The Budget 2013 is expected to provide the much needed aid to the sector through tax exemptions in home loans and affordable-housing projects. The sector deserves an industry status to efficiently build the country and get the much needed support to further boost the growth. Also, providing a single-window clearance will help in controlling project delays. The sector is closely observing the developments and expects the forthcoming Budget to address all pending issues.
Data Source-Web

Alok Kumar Upadhayay
Real Estate Professional


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