Stating that a housing revolution is the need of the hour much like the IT revolution and the green revolution, the National Real Estate Development Council (NAREDCO) has urged the government to provide an infrastructure status to the real estate sector to enhance its borrowing capacity.
The real estate body also emphasized on the need for an increase in tax deduction on home loan interest from the current Rs 2 lakh to Rs 5 lakh to boost sales.
There should be more stressed funds on the lines of the SWAMIH fund for providing funding to stuck projects and incentives for rental housing, NAREDCO said as it presented its wishlist for Union Budget 2021-22 on January 14.
“The ongoing COVID-19 pandemic has impacted global economies and Indian real estate is not spared from the depths of despair. The fiscal impetus announced under (the) Aatmanirbhar Bharat has led to renewed consumer demand that led to the emergence of green shoots in (the) Indian economy and real estate sectors. The laudable measures like tax rationalisation, additional stress fund, ample liquidity tools will keep the momentum going and propel India towards a $5 trillion economy,” said Niranjan Hiranandani, National President, NAREDCO.
“We want that the real estate sector be given infrastructure status to boost its borrowing capacity,” he told reporters.
Maharashtra has cut stamp duties and this has helped boost the sector. The recent cut in premium is also likely to rationalise housing prices in the state.
"We want a housing revolution like the IT revolution and the green revolution," Hiranandani said.
Two segments - rental and affordable housing - need an impetus in Budget 2021. For rental housing, enhanced HRA Tax Exemption; increase depreciation rate for the rental projects like in commercial buildings and allow ‘carry on’ of loss from rental income, NAREDCO said.
Similarly, affordable housing will benefit from increasing completion period to six years; while enabling concessional lending rate for affordable housing projects. Extending the Credit Linked Subsidy Scheme (CLSS) for all segments will support homebuyers.
To promote rental housing, deduction of 30 percent from the annual rental income (for purpose of maintenance) should be increased to 50 percent. This will not only improve ROI, but will also encourage citizens from investing in residential properties for giving on rent, it said.
As for the government-backed SWAMIH fund worth Rs 25,000 crore, Hiranandani said the Centre should allow more such stress funds to help facilitate the last-mile funding for stressed and stalled projects.
"Industry demands estimated Rs 1,25,000 crore via many HFCs/NBFCs who are ready to establish such funds for ailing real estate sector. This will allow for faster appraisals and sanctions," he said.
As an incentive to homebuyers, the deduction on home loan interest should be enhanced to Rs 5 lakh from Rs 2 lakh under section 24 of IT Act 1961, it said.
It also recommended long-term capital gains at 10 per cent (on par with the provision of section 112 for equity shares and reduction in the period of holding house property to up to 12 months from existing 24/36 months to qualify as a long-term capital asset.
Rajeev Talwar, Chairman, NAREDCO, said the “Interest on housing loans should be fully allowed under Income Tax Deduction without any ceiling. The current limit of interest deduction under Section 24 of IT Act 1961 on housing loan of Rs 2 lakh should be removed to incentivise homebuyers and spurring overall demand. Also, loss from house property should be fully allowed to be adjusted against other heads of income. In case of unadjusted loss, it should be fully allowed to be carried forward to subsequent years.”
“The RBI, through a notification in 2017, allowed a loan to-value ratio (LTV) of up to 90 percent for home loans for affordable houses of Rs 30 lakh or less. Same facility should be permitted for other housing including MIG and HIG as well,” he said.
Talwar also said the government should lift the ban on subvention schemes.
Under subvention schemes, homebuyers pay the initial amount, and the bank pays the loan amount to the developer according to the construction stage, while the interest portion on the loan disbursed is paid by the developer until possession. What this means is that the real estate developers pay pre-EMIs (equated monthly instalments) on behalf of homebuyers for a certain period specified in the contract or the date of possession.
In 2013, the RBI had advised banks to exercise caution while financing purchases under the interest subvention schemes “in view of the higher risks associated with such lump sum disbursal of sanctioned housing loans and customer suitability issues.”
In 2019, the National Housing Bank (NHB) had asked HFCs to "desist" from offering loans under interest subvention scheme after there were complaints of default.
The result of the two advisories was that several banks and later the HFCs stopped funding under the scheme.
NAREDCO said the one-time restructuring of loans will play an important role in improving the liquidity situation. "The requirement of the unit being 'standard unit' if done away and restructuring permitted for all units as per mutual agreement with the financing enterprise and the borrower would have a positive impact," it added.
The realtors’ body also said External Commercial Borrowings for the sector and reforms for Special Economic Zones should be allowed, including extending notification date for IT/ITeS SEZs and withdrawal of MAT.
“This will go a long way in ensuring green shoots in the real estate sector,” they said.