Ramesh Nair – CEO and Country Head, JLL India
By Ramesh Nair – CEO and Country Head, JLL India
This is a very crucial budget for the Narendra Modi Government as it will be the last complete Union Budget presentation before the government goes under the litmus test of re-elections in 2019.
In our review so far, we have seen the government make many significant changes starting from combining the Union and Railway Budgets into one consolidated document.
Before we start to speak on the expectations from the budget, we should take into considerations a few key milestones that have helped in redefining the real estate sector in 2016 – 2017.
Formalisation of payments through e-payment systems – post demonetisation the previous year, the country grappled with moving onto an e-payment modes. The impact was felt universally by corporations as well as end users
Definition of Affordable housing – the government’s clarity on the definition of affordable housing has been critical in ensuring that there is a clear understanding of the term and the benefits/impact thereafter
Introduction of Real Estate Regulatory Act across states – A major milestone in the sector’s development, RERA has been a single key to open up the sector as secured investment asset class for institutions and individuals alike
Goods & Services Tax – The introduction of the GST in across India has further altered the sector. Bringing a single tax regime reduces tax ambiguities in the sector. Though the actual cost implications of the GST is still being evaluated at various levels.
The opening up of FDI in real estate and construction sector and breaking down the last more important aspect of growth the FDI in Single Brand Retail which is now 100% through the direct route.
The above run-up to the Union Budget 2018-19 places some very strong positives for the sector and will be expecting a lot more from this year’s document. Below are a few critical demands that the sector has from the Union Budget to be presented on February 01, 2018.
OBJECTIVE: HOUSING FOR ALL 2022
The government’s objective of creating ‘Housing for All 2022’ is still a far cry from realisation. This, therefore, will be a very high priority for the government. While many steps have already been taken, the Budget 2018 – 19 should consider the below to meet and exceed its timelines.
Give Real Estate Industry Status
This longstanding demand from the sector which was pending transparency can finally be granted that status. So far the government has selectively bestowed the status on only affordable housing bringing it into the infrastructure fold.
Giving the status to real estate will open up strong possibilities of faster development and greater private participation on the back of financial options, tax exemptions on revenues and profits as well as access to preferential lending for key sector developments.
Give Smaller Developers SME Status
Affordable housing depends a lot on the participation of smaller private developers in lower tiers. Many of these developers are adept at working capital management, yet institutions are reluctant in lending to categories of developers especially in the lower tier markets.
Many development companies in the lower tiers suffer due to lower exposure and higher perceived risks which limits the development. An amalgamate disclosure information of RERA with the credibility rating of smaller developers to ensure they receive formal funding.
While many private rating agencies are already doing the same, having a government mechanism for this rating would be laudable
Incentivize Rental Housing In The Manner Of Affordable Housing
The government should turn focus on rental housing schemes as it is also an important factor for social welfare. Much as it incentivised the affordable housing include rental projects held institutionally for formats such as Student Housing, Senior Living (long lease) and executive rental housing in growth centres.
OBJECTIVE: CREATING INFRASTRUCTURAL GROWTH IN INDIA NEED MORE FINANCIAL MUSCLES
Systematic Introduction Of Municipal Bonds
For the development of local infrastructure, there are limited options to borrow from the market however, local bodies need big money to finance their core development functions.
SEBI has issued a detailed guideline in 2015 for urban local bodies to mobilise money through the issue of municipal bonds. The Government should consider these recommendations and move towards municipal bonds with a tax exemption to investors.
These will significantly reduce the burden on the centre and state governments in creating allocation matrix.
Provide Incentives For Private Developers To Participate In Make In India Projects
‘Make in India’ initiative also needs to boost associated real estate infrastructure. This could be done by providing tax incentives for private developers and funds investing in developing Industrial setups.
These can include exemption from Stamp Duty & registration charges, exemptions/rebates on taxes and duties for materials and machinery needed to develop and operate such parks.
Rationalise The Taxation On REITs
The government has streamlined the structure of REITs to a large extent. While taxation issues such as dividend distribution tax, long-term capital gains tax on the transfer of units have been resolved, REITs still need to pay Stamp Duty charges at the state level.
The government should consider convincing the States to exempt REITs from Stamp Duty for, at least for the initial few years, to increase the competitiveness of REITs in India.
OBJECTIVE: CREATING LARGER NUMBER OF INDIVIDUAL INVESTORS IN REAL ESTATE
Increase Tax Incentives For First Time Home Buyers
The current provision is for an additional tax deduction of up to INR 50,000 per financial year under section 80EE of the Income Tax Act.
The bracket should be increased up to 1 Lakhs to incentivize first-time home buyers. This deduction is over and above the Rs 2 lakhs limit under section 24 of the Income Tax Act.s from Arun Jaitley, India’s Finance Minister Jaitley will present the Union Budget for 2018-19 on 1st February.