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Budget 2020: Real estate sector proposes one-time roll over of loans and incentives for rental housing

Steps must be taken to enhance liquidity, subvention schemes be restored, taxes rationalised and home loan interest rates be lowered, recommends Naredco.

Almost a month before the presentation of the Union Budget 2020, the real estate sector has recommended a one-time roll over or restructuring of loans, and proposed that steps be taken to enhance liquidity, lower the stamp duty, incentivise rental housing, rationalise taxes, and lower home loan interest rates.

The sector has been demanding the restructuring of loans, or a one-time rollover in case of the stressed assets at the discretion of banks. In such cases, the borrower will retain the asset classification of the restructured standard accounts as standard and the same will not be treated as non-performing assets (NPAs), Naredco has proposed to the finance ministry.

"The Indian economy has in place the blueprint to reach the magic number of $5 trillion, but the upcoming Budget has more pressing and urgent issues that cry out for attention and remedial action. Real estate and urban infrastructure plays a crucial role in boosting the economy, and it calls for an immediate support in terms of easing the liquidity crisis, boosting rental housing and also rationalise personal and other forms of taxation," Naredco national president Niranjan Hiranandani told reporters.

Referring to the upcoming Budget, he said, "The Indian real estate sector expects a holistic solution rather than the piece-meal solutions that have been offered so far. The problem of liquidity is a complex one. What is needed is resolution with speedy execution. There is a need for acceleration, and NAREDCO hopes that the Finance Minister does the needful in the upcoming Budget proposals."

One time rollover of loans

In its circular dated June 2019, the RBI permitted banks to restructure and/or roll over loans at their discretion. In such cases, the borrower will retain the asset classification of the restructured accounts as standard and the same will not be treated as a non-performing asset (NPA).

But the benefit of the said circular has not been made available to the real estate sector, and as a result, the restructuring, or the rollover of the loans to the real estate sector triggers the provisions related to NPA. Due to the downturn in the market and also failures of several big non-banking financial companies (NBFCs), the developers are facing acute liquidity shortage, Naredco said in its recommendations submitted to the finance minister.

Incentivise rental housing

Rental housing will play a vital role in achieving the target of Housing for All by 2022, said and therefore, it is essential to incentivise rental housing in India.

“We believe that while the target of Housing For All will be achieved by 2022, rental housing may not achieve its aim as it has not been given a boost so far. We are hopeful that some booster items will come up in the budget which will help rental housing and help the youth of this country,” he told reporters.

With rapid urbanisation and migration, there is huge need of developing rental housing model to befit the need of the ever-increasing population in urban areas, he said.

Liquidity crisis

The real estate industry is facing a serious liquidity challenge and needs bold fiscal measures for resurrecting the reeling industry.

“Already, steps have been take to save the NBFCs, and we are now hoping that the money lying with the banks will now move into the real estate sector. We are also seeking relief in terms of section 43 A, which means that if you try to bring down the price of the flat, there is an abnormal tax which is levied under that section. This also needs to set aside,” he said.

Subvention schemes must be restored

Naredco has also proposed that subvention schemes be restored.

The NHB, through its Policy Circular dated July 19, 2019, has prohibited the Subvention Scheme (where the interest is borne and paid by the developer till the date of possession). Naredco suggested that the said circular be withdrawn since the customer of affordable housing homes cannot afford paying EMI and the rent till he gets possession. Subvention scheme also addresses the issue of interest loss due to delayed possession.

Stamp duty and interest rate cut

Naredco has proposed that rates of the stamp duty should be reduced by 50 percent for all the real estate transactions entered and agreements registered on or before 31st March 2020.

Interest rates on home loans should be reduced to 7 percent per annum and the benefit of rate cut should transmit to end users in order to revive the demand, Hiranandani said, adding reduction in stamp duty by 50 percent for all real estate transactions registered on or before March 31, 2020 shall induce the fence sitters to turn into the actual home buyers spurring up the demand and consumption.

Definition of affordable housing must be amended

As for affordable housing, Naredco stated that the definition of affordable housing has been amended in GST and in income tax laws and as a result, the affordable tenement has to meet the dual condition of area and also the price cap of Rs 45 lakh.

"As a result almost all the houses in the MMR and most of the houses in NCR and other metros do not qualify as affordable housing," said Hiranandani, adding hat it resulted in the loss of benefit of reduced GST rate of 1 percent and also the benefit of tax exemption from such projects. "We recommend that the condition related to price cap of Rs 45 lakh be immediately abolished and the benefits be restored to all the houses which have area less than 60/90 sq metres," Hiranandani said.

Other taxes
Hiranandani also said that taxing notional rent (Section 23(5) of the Income Tax Act), after one year from the end of the financial year in which completion certificate is received from the competent authority, will lead to severe financial implications for the developer/industry.

Section 23(5) needs to be deleted. Alternatively, no rent should be taxed for the period up to five years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.

It may also lead to no new projects being launched, if sales remain low, which in turn will defeat the mission of the government to provide Housing for All by 2022, he added.

People sell flats to provide for their children and old people want to give one house on rent to earn income. To overcome the huge housing shortage in the country, the restriction imposed on investment of sale proceed on acquiring two residential houses should be removed, and the scope broadened to exempt capital gain tax if the sale proceed is invested in creating three or more housing stock.

Vandana Ramnani
Vandana Ramnani
first published: Jan 8, 2020 09:59 pm