Directly or indirectly, the Real Estate sector contributes to over 15% of India’s GDP. It has been asking for industry status for quite some time now. In its absence, developers are forced to borrow at high interest rates and comply with a stringent evaluation process. Unavailability of funds at a reasonable rate of interest delays the construction process and increases the final cost of homes, negatively impacting the end consumer. Giving industry status to the entire Real Estate sector, instead of granting infrastructure status only to the affordable housing segment, would help in pushing the housing demand in India. We hope to see this announcement in the upcoming Budget.
Single Window Clearance:
For the real estate sector to really grow and execute its projects on time, various government approvals should be given in a timely manner. Developers have for long been demanding single window clearance to remove bureaucratic delays, which in turn delay delivery of homes. Research by RICS indicates that a single-window clearance system would drastically boost the real estate sector in India.
Interest on housing loans – Offer Financial Protection from project delays to home buyers:
The deduction on interest of self-occupied houses is capped at Rs 200,000. For under construction residential units, however, if the construction is completed after 3 years, then the deduction is just Rs 30,000. This 3-year period starts from the end of the year in which the loan was taken. Lately, there have been many delays in the completion of many housing projects beyond the 3-year period. This has caused hardships to property buyers. To provide them some relief, the government may consider allowing interest deduction in such cases without the cap of Rs. 30,000, and from the year in which the possession was due to the buyer as per the terms of the agreement.
Tax-savings on housing loan and housing insurance premium:
The tax deduction limit of Rs 2 lakhs on interest served on a housing loan needs to be raised, considering that most homes in the metro cities are priced at over Rs 70 lakhs. This will help home buyers. Therefore, the government must increase tax deduction limit for housing loans. Also, tax concessions on house insurance premium could be introduced to encourage home buyers to insure their homes. Similarly, the tax exemption limit could be increased by about Rs 1 lakh and be auto-set to match inflationary trends in a financial year.
Tax norms to be simplified:
We have not seen a single REIT listing till date because of the presence of multiple taxes. Until tax hurdles are removed for developers and asset holders, it is highly unlikely that we will see any REIT listing. The government should recognize the capacity of REITs to improve market conditions for the real estate sector and remove the policies constraining their growth. The government should look at: