GST can be a game changer

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As the next financial year commences, the industry is enthused by the government’s commitment towards upgrading the country’s infrastructure, ensuring planned urbanisation.

‘To create an environment conducive for private sector investment, the upcoming Budget 2016-17 will need to address a range of issues.

Affordable housing

According to the Economic Survey of India, the real estate industry contributed 5.9% of the country’s GDP in 2012-2013; whereas the numbers for U.S. are as high as 15.5% despite being a developed economy. With so much of pent up demand in the value and affordable housing segment, the GDP contribution from housing should be multi-fold.

To achieve the objective of ‘Housing for All’, affordable housing projects should be exempted from Income Tax for seven years till 2022 and Excise and Customs Duty which constitutes 15% currently.

Commercial banks and traditional means of housing finance may not have the reach to cater to the low income groups as they may not have stable source of income and in most cases unable to fulfil the documentary requirements for applying for a loan. Consumers from LIGs – MIGs are sometime inhibited to approach the organized financial sector because of lack of documentation or inability to understand the process. This forces them to go to the unorganized sector and micro finance units for finance which typically lends at an exorbitant interest rate of 16-20%.

Interest subsidy currently stands at 6.5% for loans up to Rs. 6 lakh. It must be increased to Rs.12 lakh for top 4-6 urban clusters and up to Rs.8 lakh for other locations

For MIG, interest subsidy at 50% of 6.5% for MIG housing with loan values of Rs.20 to 25 lakh for metros and Rs.15-20 lakh for non-metros. (majority of existing units are available in this range)

There is a need to bring about behavioural change among developers to voluntarily adopt sustainable technologies. Also, India is a price sensitive market and the additional cost becomes a burden for consumers. The budget should provide a combination of incentives both for the sector as well as for the consumers to boost development and buyer interest in green real estate in the country.

Taxing problems

The Goods and Services Tax Bill could be a game changer for the real estate industry addressing the problem of multiple taxation and bringing in transparency in the sector. This may have a cascading effect for homebuyers as developers with more margins in the hands can restructure the cost of the products in favour of consumers.

The budget must encourage demand by increasing the deduction available for interest on housing loans from Rs.2 lakh to Rs.3 lakhs p.a. in keeping with interest rates that are still high. The successive rate cuts are yet to be translated by banks and so the investment climate for the sector has not improved.

With the twin objectives of spurring growth in India’s realty development and benefiting the end-consumer, the realty sector’s expectations of significant policy improvements from the upcoming budget are high and the industry is looking forward to a well-balanced Finance Bill that will keep sustainable development at the core of its focus.

The author is Managing Director and CEO, Tata Housing

Source: http://www.thehindu.com/business/Economy/gst-can-be-a-game-changer/article8262006.ece

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