Budget 2015: Reforms & tax sops required to boost real estate

Sanjay Dutt

In its maiden Budget last year, the Narendra Modi led government had introduced a number of initiatives targeting the real estate sector. Further, other initiatives to boost economic growth also created a favourable impact on the real estate sector as institutional investments, including foreign capital, have been invested in record volumes over the last year. The effect on the office sector has been especially profound. However, the residential and retail asset classes within the real estate sector are still struggling with depressed demand and a number of other issues. Hence, the expectations of the real estate sector for the upcoming Union Budget 2015 are extremely high as all stakeholders, including the developers, lenders, end-users and investors are eager to analyze the road map of development that the government will unveil for the year. Policies tackling the all-important four ‘I’s – Inflation, Interest rates, Infrastructure development and Investments will be most keenly watched as these are required to boost the demand and supply of homes.

Meanwhile, corporate occupiers continue to watch out for measures that will govern ease of doing business in India. Governance, infrastructure development and skill development are critical pillars that the government has promised delivery on and business houses will look for those distinct overtones in the Budget speech. To its credit, the government has been making the right noises so far as the broader agendas are concerned. For instance, Prime Minister Narendra Modi has already said that his government will work towards making India the easiest place to do business in.

Specifically, the real estate sector has the following expectations from the Budget:

• There is a strong need for the government to reconsider the decision to impose levies such as Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) in SEZs.
• Introduce uniform tax regime Direct Tax Code (DTC) and Goods and Services Tax (GST) and rationalize stamp duty across states so that there is a higher degree of standardization.
• Income Tax deduction under Section 80-IB is currently allowed to developers to build affordable housing projects sanctioned on or before March 31, 2008. As this date has not been extended, it needs to be re-introduced in the Parliament in order to generate interest of developers in Low Income Group (LIG) housing where demand exceeds supply substantially.
• Re-introduce the interest subvention for affordable housing, which was 1% on housing loans of up to Rs. 25 lakhs for houses that were valued at up to Rs. 40 lakhs. This will continue to have a positive impact on residential sales in small cities and towns and peripheral locations of major metros where such units are available.
• Introduce and encourage building rental housing and affordable housing projects; make efforts to enhance supply side factors especially in cities such as Mumbai and the Delhi National Capital Region (NCR). The necessary funding could be either provided through budgetary allocations or with the Credit Guarantee Trust Fund, setup by the Government last year, guaranteeing the loans taken for such projects.
• Enact provisions for Special Residential Zones (SRZs) to incentivize the growth of housing stock, especially in peripheral city limits and other targeted locations.
• Introduce special incentives for the development of new smart cities.
• Provide tax incentives to boost retail investments in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs); specifically, exemption from DDT and capital gains on transfer of assets to REITs.
• Provide clarity on whether FDI is allowed in owning other built commercial asset classes such as shopping centres / malls.
• Expectations are riding high that the central government will continue to push for reforms that were so far left in the backburner and are much needed to revitalize the economy. As the Government has pointed out time and time again, revival of economic growth is its top agenda and the real estate sector will benefit immensely from this.

In addition to introducing suitable policy reforms in the Budget, the central government also needs to pass the proposed Real Estate Regulation Bill and implement it in on a priority basis to bring in more transparency and best practices to the real estate sector.