The Real Estate Sector's Key Expectations From Union Budget 2016

 Anuj Puri, Chairman & Country Head, JLL India

January 27 2016,  13.12 PM IST || Pocket Press Release

The Union Budget is an eagerly-awaited annual event which Indians follow closely, as the decisions and allocations announced by the Finance Ministry have great pertinence to both individuals and industries. The real estate sector is sensitive to many of policies that are announced both for various industries and individuals. The realty sector is just emerging from a prolonged and painful slowdown, and is looking for all and any signs of light at the end of the tunnel. This fact makes Union Budget 2016 all the more critical, and the real estate industry has many expectations from it.    

·         Offer financial protection from project delays to home buyers

The Union Budget should pay specific heed to this pressing need. On purchase into an under-construction property, buyers can only claim tax benefits of Rs. 2 lakh after possession if construction is completed within three years. The benefits reduce to Rs. 30,000 if the builder delays construction beyond this - and they pay higher interest. First-time home buyers purchasing properties for self-use additionally pay rent.

Instead of allowing home buyers tax benefits post-possession, the Union Budget should make a provision that allows these from the time they start paying interest on housing loans. This will ease their monetary burden considerably and make increase the velocity of home loan disbursements. Similarly, if an under-construction property is purchased from capital gains, its construction must be completed within three years of its sale to avail exemption. There can be delays by developer in such cases too. These deductions should be brought at par and the construction timeline should be extended from the current three years to five years.

·         Provide more tax saving on housing loan and house insurance premiums

The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of Rs 2 lakh is insignificant given the ticket sizes in cities like Mumbai, where most houses are priced at Rs 1 crore and above. Also, tax concessions on house insurance premiums could be introduced to encourage end users to insure their homes. Similarly, the tax exemption limit should be increased by about Rs 1 lakh and be auto-set to match inflationary trends in a financial year.

·         Raise house rent deduction limit

Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a deduction. This deduction can be substantial in cases where the salary and its HRA component are higher. However,  self-employed persons and those who draw lump sum pays without an HRA component can only claim a maximum deduction of Rs 2,000 a month under Section 80GG. The Budget can and should address this anomaly.

·         Provide more incentives to boost development and consumption of sustainable real estate

The Budget should provide clear and convincing benefits to buyers of green real estate in the country. Stakeholders of the residential real estate sector definitely require more encouragement to press the 'green' button. Most home buyers in India are averse to paying an extra premium for such projects, and the low demand means that developers are not sufficiently active in this segment. The Budget should provide a combination of incentives to boost the development and buyer interest in green real estate in the country.

·         Make additional allocation for infrastructure development in peripheral areas of metros

Although the previous Budget prioritised affordable housing, the upcoming Budget should allocate an amount specifically for building infrastructure and improving connectivity in the peripheral areas of cities, especially the metros. Without this, it will be difficult to provide affordable housing in the cities. Developers entering this segment should be allowed cheaper financing options, thereby also providing a shot in the arm for government’s ‘Housing for All by 2022’ target.

·         Remove the DDT bottleneck in REITs

Despite the announcement last year, there has not been a single REIT listing in India to date. The primary reason is the presence of Dividend Distribution Tax (DDT). While the government has worked towards removing other bottlenecks, DDT has remained a key pending issue. Developers and other asset holders need the government to do away with it in the Budget 2016. Until this vital change is made, REITs – which can almost single-handedly revive the Indian real estate sector – will remain pipped at the post. To aid the faster revival of the real estate sector as well as to provide a significant boost to the economy in general, the Budget must address this issue.

·         Provide clarity on GST implementation and eCommerce

The Finance Minister should announce a specific date for the implementation of GST. This major reform will give the industry a very clear taxation structure and induce a major sea change for the logistics architecture, since logistics will be driven by cost and not by a regulatory regime.

eCommerce is booming in India, but different states currently have varying definitions and laws on eCommerce. A common definition as well as law is needed to govern this sector and help companies operate more efficiently. Such a move will help start-up firm up their investment plans, as well.

·         Provide sops for the retail industry to induce vibrancy

The retail industry wants also seeks the earliest implementation of GST. Also, eCommerce and offline players need a level playing field. Sops should be given to the retail industry to induce the kind of vibrancy evident in countries like Dubai and Singapore, which have shown successfully how one can tap the retail sector to attract tourists.

The Real Estate Sector's Key Expectations From Union Budget 2016