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Sunil Rohokale

In recent times, the real estate industry has been strapped for liquidity, be it debt or equity capital. Factors such as declines in pre-sales, reduced affordability and high interest rates for mortgage borrowers have combined to adversely impact liquidity of developers.

The Government in recent times has attempted to improve liquidity to the sector by incentivising banks to lower interest rates by extending the umbrella of “priority sector lending” to home loans up to Rs 30 lakh. This move has widely stimulated demand and supply in the affordable housing segment.

Further, the RBI had opened a restructuring window in March 2009 to enable developers to improve their cash-flow situation by utilising the restructuring facility and avoid classification as NPAs (non performing assets).

The recession impacted real estate sector had the following wish-list:

For affordable housing (through lower interest rates on loans upto Rs 30 lakh) there was a demand to reintroduce a tax holiday under Section 80IB for housing.

Tax holiday available to hotels under section 80ID to be extended to 10 years from existing time limit of five years. The gestation period in hotel industry, itself, stretches from four to five years.

To garner resources for providing liquidity to the sector:

Reintroduce tax pass-through status for domestic venture capital funds that invest in the Indian real estate sector;

Clarify that the Real Estate Mutual Funds are to be treated as equity oriented funds;

Extend the external commercial borrowing scheme to the entire Indian real estate sector including Special Economic Zones and not just 100 acre townships, hotels, hospitals etc. in view of the relatively moderate international costs of borrowing

Encourage States to reduce stamp duty to 5 per cent and to provide a system of credit for each stage of sale i.e. levy on value addition.

Increase in deduction available under section 24(b) to Rs3,00,000 against existing limit of Rs 1,50,000 for self occupied houses.

Increase the basic exemption limit under provisions of Wealth tax Act to Rs 50 lakh against existing limit of Rs 15 lakh keeping in perspective the price of property etc.

The government while not fulfilling a large part of the industry wish-list has responded by providing right cues to the industry by;

— Giving additional thrust to JNNURM, which is a core growth driver for real estate industry.

— Further subsiding housing loans of up to Rs 1,00,000 thus encouraging demand for affordable housing.

— Creation of Rs 2,000 crore corpus with National Housing Bank (NHB) for refinancing “affordable housing mortgages”

— Extending the STPI tax sunset clause by another year.

To revive growth and recovery, it would be advisable for developers to focus on;

Right-sizing and right pricing the end product and stimulating demand

Increasing focus on residential real estate including affordable housing

Continue to deleverage balance sheets by exiting non-core assets and recapitalizing companies through QIPs

Lastly and most importantly, focussing on project execution rather than land banking for valuation building.

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