Budget Watch: Real Estate Sector Wants Industry Status, Tax Break

The real estate sector, which has seen new records in sales and new home construction over the past year, is expecting the central government to grant it industry status and offer some tax breaks to support affordable homes, several top executives told Business Standard.

Pavitra Shankar, Managing Director, Brigade Enterprises, said the status of the industry is “one of the long-standing demands” of the sector

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“This would enable easier access to institutional financing, streamline regulatory processes and increase investor confidence,” she added.

Shrinivas Rao, CEO (APAC) at Vestian added that granting industrial status to the sector will facilitate availability of funds and increase participation of foreign investors.

G Hari Babu, chairman of NAREDCO, said that currently small and medium developers are “struggling” for space and can borrow money only from private investors at high interest rates.

“By granting industry status to the real estate segment, the government will come to the rescue of these small and medium developers. With the industry status, these small builders will get SME status and will be able to access loans at lower interest rates,” he said.

The sector also expects the central government to take steps, including tax breaks, to boost demand for affordable housing, which is typically priced below Rs 50 lakh.

“The government should raise the limit for deduction of mortgage interest from the current Rs 2 lakh per annum to Rs 5 lakh, which will give a boost to the demand for housing,” said Ramani Sastri, chairman and managing director, Sterling Developers Pvt. Ltd.

Anshuman Magazine, Chairman and CEO (India, Southeast Asia, Middle East and Africa), CBRE, informed that the Centre offered 100 per cent tax deduction on profits and benefits derived from the business of developing and constructing affordable housing projects.

“However, the tax holiday expires in 2022,” he said. “Reviving the program would benefit developers of affordable housing projects, as such projects typically operate on low margins.”

This comes at a time when the affordable housing sector is struggling to maintain market share due to the growing popularity of luxury housing in India.

Some executives also said the definition of affordable housing should be changed.

According to the Ministry of Housing and Urban Poverty Reduction, affordable housing is defined based on the size of the property, its price and the income of the buyer.

Affordable housing is a house or flat of up to 90 square metres in non-metro cities and towns and 60 square metres in large cities, valued at Rs 45 lakh for both. On the other hand, the Reserve Bank of India defines it based on loans given by banks to people for building a house or buying flats.

The magazine said, “The government should consider increasing the size criteria for metro cities to 90 sq ft and set three to four unit size and price bands to determine the eligibility criteria depending on the city/state dynamics as capital values in larger metro cities (Mumbai, Delhi-NCR) can be much higher as compared to other cities.”

Also, for residential projects, except the affordable housing segment, the Goods and Services Tax (GST) of 5 per cent excluding input tax (ITC) applies. The GST for affordable housing is 1 per cent excluding ITC. However, the GST on key building materials like marble, tiles, glass, prefabricated structural elements, etc., ranges between 12 per cent and 28 per cent.

Industry representatives said the ITC must be reinstated.

“The government should also consider reintroducing input tax credit to enable smooth transfer of benefits from the developer to the end customer,” Pavitra said.