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Post demonetisation, the real estate industry expects the government to initiate measures that boost ‘consumption’, during the upcoming budget. The challenge for the government, is to grow the economy while maintaining fiscal prudence. A direct and immediate means of achieving that goal, is to significantly reduce corporate and income tax, which gives companies and individuals more money in hand to spend.
In the 2015 budget, the government declared its intent to reduce corporate tax to 25% by 2020, with the intent of making Indian corporates more competitive, globally. One of the goals of demonetisation, has been to increase the tax base and the logical next step would, therefore, be to reduce tax rates. Most industry stakeholders believe that a tax cut is a given. The moot question, however, is by how much will the government reduce taxes? If taxes are reduced, then, we should expect Minimum Alternate Tax (MAT) rates also to come down, which has been a long-standing demand from SEZ developers and companies operating from SEZs.
Other measures to fuel demand that will, hopefully, be included in the budget:
- Deduction on interest paid on borrowed capital for under-construction properties, to commence from the year of borrowing.
- Enhanced tax deduction limit for home loans beyond the current Rs 2 lakhs.
- Increase in tax deduction under section 80 GG, for self-employed persons claiming House Rent Allowance (HRA).
Individually, these measures are unlikely to change the prospects of the real estate industry.
Infrastructure development will be the key to long-term growth
The long-term method for boosting the economy, is to invest in infrastructure.
The industry hopes that more money will be spent on the ‘Smart Cities’ mission and a substantial portion of that will be in upgrading urban infrastructure. For the first time, the railway budget has been merged with the general budget. Can we, therefore, expect more spending on metro rail projects and revenue generation through modernisation of railway stations and monetisation of railway properties? Extending that argument, can we expect monetisation of unused and non-strategic government land, belonging to the ports, defence and other departments, for affordable housing projects?
Growth in manufacturing jobs is close to the government’s heart. So, we expect a boost for industrial parks and industrial corridors.
Ease of doing business needs to improve
We hope that the government boosts the ease of doing business in the real estate sector, by nudging states to adopt single-window clearances. As the pressure to deliver on time increases, we need to move to an environment of time-bound ‘deemed approvals’, to plug one of the major areas of delays.
We also hope that there will be more clarity on tax treatment under the Goods and Services Tax (GST) for the real estate sector. Aligned to reducing black money, we hope for more clarity on how the government intends to clamp down on Benami transactions and the timeline for implementation of the Real Estate Regulation Act (RERA). Consumers also want the central government to prevent the dilution of RERA norms, by state governments. We also expect the finance minister to announce measures to encourage cash-less transactions, which would further fuel growth for the Fintech sector.
A crucial budget for the real estate sector
For the real estate industry, there has never been more riding on the budget.
The industry is not looking at minor incentives for the sector, but major announcements to boost the economy and bring back consumption of real estate. We need a game-changing budget, not just tweaks. The industry is fuelled by growth in the economy, which results in greater office offtake, residential sales, more industrial plants and requirements for other real estate asset classes.
Therefore, a budget that boosts growth is good for real estate, irrespective of whether the demand by the industry for smaller incentives are met or not.
(The writer is national director, knowledge systems, Colliers International India)