Introduction 1 : Key highlights of the last

  Introduction

In
India, real estate is the second largest employer after agriculture and is
slated to grow at 30 per cent over the next decade. The Indian real estate
market is expected to touch US$ 180 billion by 2020.The housing sector alone
contributes 5-6 per cent to the country’s Gross Domestic Product (GDP).The
world Bank forecast GDP between 7.7% and 7.8% for the financial year 2018
–2019.(Indian Real Estate Industry: Overview, Market Size, Growth, Investments,
IBEF). In the financial year 2017 -18, the Honourable  Finance minister had granted infrastructure
status to affordable housing projects. It is expected that the upcoming budget
will focuses on infrastructure and affordable housing  to boost the national GDP.

 

Focus of real estate budget over the years (Last 3
years of Modi Government) and expectation from the budget 2018

 

 During
the last 3 years, the focus was shifted from other aspects to affordable
housing (given industry status)  and
infrastructure development. Therefore it is expected to encourage private sector
real estate developers and induce the much – needed push to complete the target
of “Housing for all by 2022″ in the financial year 2018- 19.”Ease of doing
business” should be given priority in the upcoming budget of India. ‘Industry’
now will expect that Real Estate Sector should be given industry status as
priority for the budget 2018.The objective of ‘Housing for All’ will not be
achieved only by the private sector or the public sector; rather it will be the
partnership model, which will help achieve this goal. From the industry’s
perspective, ensuring the PPP model works will also require not just ‘ease of
doing business’ but also require partnership approach in the real sense from
the government. It will  enhance  transparency in taxation, reduction in the
cascading of taxes and real estate being completely brought under GST. 

 

Table 1 : Key highlights of the
last 3 years of Modi Government  and
Future Expectation

Issues

Last 3 years
of  Modi Government

2018 : Budget
Expectation

 
1) Affordable Housing

1)
Infrastructure status to Affordable housing.
2)
Announcement of eight new PPP models.
3)
Housing shortage in urban areas has been reduced to about 10 million units
from 2011 projection of 18.76 million.

1)
Evolve a rental housing model.
2)Increase
in allocation of funds to affordable housing.
3)Incentivise
the use of modern construction technology.
4)
Encourage design optimization vs reduction of area.

 
 
 
2) Real Estate
Regulation Act

1) Under RERA, each state
will have to setup regulatory bodies as appellate tribunals to solve the
disputes between buyer and builder within 120 days.
2) Developer will have to
put 70% of the money collected from a buyer in a separate account to meet the
construction cost of the project. The buyer will pay only for the carpet area
(area within walls).
3) Recently, government
has decided for setting up of  Central Advisory
council for effective implementation of these act etc.

1) Allocation of funds for setting upon RERA regulatory
body.
2) Incentivizing the
governments that implement RERA efficiently.
 
 

 
 
 
3)  Indirect 
Tax

 
 
GST
charge @12% on Under Construction property (excluding Stamp Duty &
Registration charges). No tax is applicable on ready to move in properties.

1)
It is expected in the budget 2018 rationalisation of the GST rates from the
current 12 per cent to 6 per cent.
2)
Bringing stamp duty under the ambit of GST.
3)
Removal of GST on commercial leasing so as to benefit REITS and induce
further investment in commercial real estate.
4)
Removal of GST as applicable on long term lease of law and property, long
lease to be treated as deemed sale.
5)
Developers to get input credit on commercial building built  for lease only, not sale.

 
 
 
 
 
4)   Direct
Tax               ( including Expectations of Home   buyers)

1) Corporate tax rate
reduced to 25 per cent (for FY 2017-18) for companies whose total turnover or
gross receipts of FY 2015-16 does not exceed INR 50 crore.
2) With respect to
eligibility limits of 30 sq. meters and 60 sq. meters – built-up area has
been substituted by carpet area as defined under Section 2(k) of Section 2 of
the Real Estate (Regulation and Development) Act, 2016.
3) The income tax rate is
reduced from 10% to 5% for tax slab between Rs 3,00,000 to Rs 500,000 for
individuals. Any person whose income is above Rs. 5 lacs would now have a net
tax saving of Rs. 12,500.
4)
The loss from house property
which could be set off against other income, to Rs. 2 lakhs.
5)
Section 80EE of the Act
provided an additional deduction of Rs.50,000 for first time home buyers
whose housing loan was sanctioned during the period April 1, 2016 to March
31, 2017.

1)
Removal of Minimum Alternate
Tax levy on Special Economic Zones (SEZs) units and developers and also on
affordable housing units.
2) Allowing FDI in an LLP
engaged in real estate development and construction.
3) Housing loss set-off limit of Rs.2 lakhs need to be
increased for home buyers to Rs. 5 lakhs, no limit for 1st time home buyers.
4) The above property needs to be extended to first
time home buyers with loans sanctioned beyond 31st March 2017.
5) Hike in HRA exemption
limit is needed and tax incentives for first-time home buyers need to be
hiked from Rs 50,000 to Rs 2 lakh.

 
 
5) Real Estate
Investment Trusts

1)
SEBI introduced REITs as a way to funding in the real estate sector.
SEBI eased the funding norms
for REITS and INVITs, allowing them to raise funds through debt securities.
2)
A number of well  known private acuity
funds such as black stone groups, GIC and the Canadian pension board  have planning to list REITS in 2018.   

1)
Extending individual LTCG benefits to REITS in terms of holding period i.e. 2
years.
2)
Exemption from dividend
distribution tax on any distribution to be distributed by an SPV to holding
REIT company and to shareholders of REIT by the holding company.
3)
No tax to be charged in case a property is moved into REIT.
4)
No TDS to be deducted in payment of interest to any REIT holder by HUDCO.

 
 
6)  Smart Cities

1) The project envisaged
area-based interventions for developing urban areas or cities. Different
cities are in different stages of processing, tendering and implementation.
2) According
to the data presented by housing and urban  affairs  ministry, “Only 5.2% of the total identified projects have been completed
with just 1.4% of the total envisaged investment of Rs 1,35,958 crore.
90 “smart cities” have identified
2,864 projects.

1) Introduction of TIFF financing for rising of fund to
Urban local bodies.
2) Incentivising and penalising cities on utilization
and non – utilization of fund responsibly.
 

 
7) Benami

The
real estate sector will get benefit from the amendments that were made late
in 2016 to the Benami Transactions Prohibition Act. It will help in curbing
malpractices and stopping the inflow of black money into real estate.

 It is expected in the budget that Benami Transactions Prohibition Act
will be implemented and Aadhaar linkages will be compulsory for all property
transactions.

 
 
8) Insolvency

1)
A builder may file for a
insolvency when he is unable to clear his debts once they become due. If a builder is declared insolvent,
IBC provides two options – resolution or liquidation.
2) IBC also protect the
interests of home buyers who have invested their savings to buy a house.

It is expected Government will gave more emphasis to Insolvency and Bankruptcy Code
2016 implementation.

 
 
9) Infrastructure
and Real Estate

 
 
The
focus was more on infrastructure development  and  land
monetization.
 

1)
In order to fund infrastructure projects, government must focus on its land
monetization by keeping realistic expectation from the management and acting
as a facilitator to get required permission and sanctions in a speedy manner.
2)
The government is likely to announce construction of more airports, roads,
ports and other projects in the upcoming Budget.

 
10) Others
Expectations

1)
Push   for  implementation and  digitisation of  land records.
 
2)
Implementation
of the Enemy Property
(Amendment and Validation) Bill.
 
3)
Further push to TOD policy and infrastructure development, so as to increase
connectivity and thereby bring more land under development so as to reduce land
price.
 
4)
Giving incentives to develop warehouses so as to aid in speedy implementation
or GST.
 

 

 

Conclusion

The year 2017 was an eventful one for the
sector with many structural policy reforms, which resulted in a significant
decline in home launches to 1,03,570 units compared to 1,75,822 in 2016. It is expected
in  Budget 2018-19 for relief measures
like lower taxes and infrastructure status. It is also expected rationalisation
of the GST rates from the current 12 per cent to 6 per cent. It is also
expected the Government should make land available at a cheaper cost of capital
to promote the affordable housing sector, Government policies should promote
Single Window Clearance and Smoother Approval Process including Environmental
Clearance within specified timelines and  there will be reduction of  LTCG Holding Period for REIT’s. Altogether,
it is expected that Budget 2018 will be favourable for real estate sector.

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