The real estate sector has been hit by a double whammy — demand slump and worsened sentiments post demonetisation. The sector’s prospects are now pinned on to the Budget, and hopes it can reignite demand. Project developers are also batting for low cost of funds with a lowered interest rate regime in Budget 2017.

According to industry watchers, demonetisation has had a significant impact on secondary market sales across the sector. While there has not been an evident price cut, the slump in property purchases is due to people hoping for interest rates to come down after an expected RBI rate cut and the likely sops in the coming Budget.

‘Primary market unfazed’

Neeraj Sharma , Director, Grant Thornton Advisory Private Limited, told BusinessLine that the primary market, on the other hand, has been relatively unfazed, with most of the players moving towards a regime where black money investments are not as prevalent. There has also been an evident slump in demand over the last year. Home buyers and project developers have been delaying purchases and launches, hoping for more clarity on RERA (Regulation and Development Act) legislations by State governments.

A rise in input costs and cost of funds is also plaguing developers. Further, the delay in the overall approval mechanism is impacting the sector. Sharma notes that there is also a need to make Real Estate Investment Trusts (REITs) more attractive for project developers.

According to Sharma, the first thing the Finance Minister can enable is to ensure money in the hands of consumers from the taxation side. For the housing sector, Grant Thornton suggests doubling the deduction on account of housing loan interest. The tax deduction on principal repayment is very marginal, comparing the ticket-size of apartments in Mumbai or any of the metros. Further, the deductions start only when one gets the possession of the property and not from when one starts paying back the loan. If the government tweaks the provision a little bit, it can create a very significant positive impact for the home buyer.

First-time buyers

The industry is also batting for special incentives for first-time home buyers. The trigger can be a stronger push laced with incentives towards affordable housing valued up to ₹50 lakh, to boost the demand side. An additional interest reduction will boost the prospects for affordable home buyers. With provisions of the RERA kicking in, norms mandating timely delivery of property will become stricter for developers. This will allow the government to form a more coherent incentive scheme for first-time buyers.

On the input cost, the GST rate will be very important, according to Sharma. The industry is looking for a clarification from the government on how the input tax credit on raw materials will work when developers move into the composite scheme. Project developers need to be assured that they could avail themselves of the input tax credit against their final demand. While the sector is covered under GST, currently, stamp duty on registering property has been kept out of GST.

Another consistent demand is that of infrastructure status for the sector. If agreed to, project developers will have cheaper access to capital. There are issues regarding land acquisition and delays in delivery of flats. With RERA provisions enabling stricter execution of deadlines, there is scope for the government to extend incentives for project developers.

Modifications to the REIT framework can also boost developers’ prospects. There is also a demand to do away with the capital gain tax developers incur when a project is listed on an REIT. A slightly far-fetched incentive will be to do away with the service tax on leased income. REITs need to be made attractive for both developers and investors to encourage fund-raising.

comment COMMENT NOW