BUDGET 2013: Expectations For The Real Estate Sector

As tabling of Union Budget for 2013 in Parliament is just few days away, Indian industries are looking for incentives to augment their growth in this fiscal.  One of the major industries after agriculture in India is building and construction, which needs to get a boost in the budget for faster economic growth, according to Cushman & Wakefield.   

As real estate takes major share in construction activity, the government needs to concentrate more to bring the sector back on growth track, says Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.

 “The widening gap between supply and demand in the affordable housing segment highlights the need for effective and focused efforts towards bridging the same. The Government needs to look into providing additional fiscal incentives such as tax concessions on building materials, technology and services to decrease construction costs, and provide more income tax relief to buyers of affordable housing units,” Sanjay said in a statement. 

Though the Government had taken commendable steps to boosting financing options for the affordable housing segment by allowing External Commercial Borrowings (ECB), the option is fraught with risks, thereby discouraging its application, he said, adding, “Developers and housing finance companies are highly exposed to currency risks since their income is mainly from domestic sources. Even if they hedge the loan value against currency devaluation, the total cost of borrowing would increase to almost existing market rates. Hence, to encourage this option, the Government needs to provide some additional safety nets for ECB borrowers to ensure that they can still access the necessary funds.”

Asking the government to extend Income Tax rebate for affordable housing to developers beyond March 31, 2008, he said, “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.

Encourage development of rental housing in the affordable housing segment by setting up public ‘Housing Associations’ (HA) that construct, own, operate and manage the rental housing units. 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 by these HAs, he said.

Softening interest / lending rates 

Asking the government to extend interest subvention for affordable housing, which was 1% on housing loans of upto Rs. 15 lakhs, Sanjay Dutt opined that, “This will continue to have a positive impact on residential sales in small cities and towns and peripheral locations of major metros where the units are priced upto Rs. 25 lakhs.”

The Government must encourage the RBI to grant industry status to the housing sector in real estate, so that loans to the sector are not given a higher risk weightage and the interest rates are charged at lower and competitive rates, he said.

Policies for SEZs

With a large number of SEZs being cancelled in the last year, there is a strong need for the government to reconsider the decision to impose levies such as the Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) in SEZs.

Speedy approval process

There is a need to improve the regulatory framework for approvals by having a single window clearance system – especially for the housing sector in order to curb the ongoing delays in project sanctioning etc. The total process for approval is time consuming taking 1-3 years affecting the timelines and scheduling of the projects. The Government needs to address this issue so as to speed up the approval process for the same.

Though it has nothing to do with the Budget itself, the recommendations of the Committee of Streamlining Approval Procedures for Real Estate Projects (SAPREP) should be implemented quickly to cut down on the time taken for real estate projects to develop. This itself will ensure that costs and over-runs are controlled and final prices for the real estate units are within control, Sanjay further added.