Union Budget 2010 -11 - Builders not pleased at Service Tax, No Incentive for Affordable Housing Projects, Not Extending Project Commencement Date

The devil is in the detail for the real estate sector. Though the Budget gave sops to home buyers in the form of tax savings and interest rate subvention, it quietly brought back service tax on lease rentals in the Finance Bill.

Builders said they’d pass on the service tax burden to customers. The silver lining was that the continuation of interest rate subvention and higher disposable income in the hands of individuals through income tax reliefs would more than make up for it.

Why should builders launch affordable housing projects?

This Budget also extended the interest rate subvention on a housing loan up to Rs 10 lakh where the house price is up to Rs 20 lakh, announced in the earlier Budget, to March 31, 2011. But, many developers are unimpressed. “Overall, home sales may go up, but there is no incentive for developers to launch more affordable housing projects. Why should we?'' said Niranjan Hiranandani, managing director of Hiranandani Constructions.

Service Tax will increase the price of properties!

According to the Finance Bill, service tax would be levied for renting immovable property or any other service to such renting with retrospective effect from June 1, 2007. The service tax rate is 10 per cent now.

Buildings under construction and the leasing of vacant land would also attract service tax, the Bill says.

“The levy of service tax will increase the price of properties. This has come as a dampener, as even renting under-construction property will attract service tax now,'' says Jai Mavani, executive director and head of the real estate practice at KPMG.

Some developers are unmoved. “We will transfer the service tax to home buyers and to that effect there will not be any additional liability,'' said Sarang Wadhawan, managing director of HDIL, a Mumbai-based developer.

“One-Time Relief to Real Estate Sector''

Though the Budget allowed projects started before March 31, 2008, to be completed within five years instead of four for claiming deduction of their profits as “one-time relief to the sector'', developers and consultants said the measure does not help much. “It is unfortunate that the commencement date of March 31, 2008, has not been extended but the period for implementation has been extended by one year. Hence, the impact of the amendment would be marginal,'' said Pranay Vakil, chairman of Knight Frank India, an international property consultant.
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Realty developers not pleased at many Budget details

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Union Budget 2010 - 11: Indian real estate sector pins hope on Finance Minister

India's troubled real estate sector is in desparate need of sops which could help boost demand for housing.

In its Budget proposals, the urban development ministry has sought removal of service tax on rental income from commercial properties arguing that renting of space is not a service and due to a court stay on the proposal there has been no loss to the government exchequer.

On its part the housing ministry has sought a three year extension in tax exemption under section 80 IB for developers of affordable housing projects. The exemption was granted in 2007 but was withdrawn last year.

“No one is addressing the larger issue. The most important need of the hour is for us to get industry status. We generate more jobs than any other sector and the trickele down effect is huge,” said Pranav Ansal, Vice-Chairman, Ansal API.

However, not everyone is impressed.

“There's no denying the fact that UD and housing ministries are doing their bits to bring the needed relief to the sector. We now need to see, the response that finance minister eventually gives,” said Rajeev Talwar, group executive director of DLF.

These are demands that the real estate sector has been pushing for the last many years, and all eyes are on the response Mr Mukherjee gives to them.

To read more, please, visit NDTV Profit

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1) WEDNESDAY, FEBRUARY 17, 2010

Home buyers may find this Budget friendly

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Union Budget 2010 -11: stimulus packages must continue

3) FRIDAY, FEBRUARY 19, 2010

Union Budget 2010 -11: Concessions to rental housing critical

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Union Budget 2010 -11: Concessions to rental housing critical

Today yields in rental housing are so low (at about 5% or 6%) that nobody wants to invest in it. Moreover, the legal system is such that getting a flat back (from a tenant) can be a problem. Both these have to be addressed.

With the Union Budget just a few days away, DNA Money invited some realty sector stalwarts to understand what they wanted from the Union finance minister. Excerpts:

Would better rental norms help develop a Reit market in India?

Pranay Vakil, chairman of Knight Frank India:
I think the two are inter-related. You either have Reit or Reit-like products — both will serve the purpose of organised rental housing. There is not a single developer creating rental housing in an organised fashion in India. See, every city has a 20-30% floating population, which doesn’t necessarily want to buy a flat. They are subjected to brokers who just give something, they don’t even know if the titles are clear; then they worry if they’ll get their deposits back. If you have rental housing backed by the government, it will make repossession possible. That is the need of the hour.

Pujit Aggarwal, managing director of Orbit Corporation:
A Reit-like structure will bring down rentals and there is also an automatic passthrough as far as taxes are concerned. We are asking that Reits be given mutual fund status so that they become more attractive and developers would create more for-rent properties. This structure has proved to be one of the biggest drivers of housing in Europe and America.

Mayur R Shah, managing director of Marathon Realty:
The problem is that we can push the issue but the decision has to be taken by the finance minister. If I do a rental business today, how do I exit from the market? The typical exit is a Reit, which buys flats from a developer. If the developer is given a tax break, he would be inclined to do rental housing.

Vakil:
Another confusion is on whether service tax is applicable on rental housing. The high court says it is not, but I can show you internal instructions of the tax department which say it is, and the department is actually telling its people to go and recover service tax despite the HC order. What we want is clarity and consistency.

What about Section 801B?

Lodha:
A lot of us have abused the section. We have done 4,000 sq ft flats and showed it as 4 flats. We hit ourselves by doing such things. But where the cases were genuine, where you are really providing affordable housing, it has to be there because otherwise the IRRs aren’t there.

Moreover, that is where the bulk of the population wants housing. When you look at Mumbai’s demographics, we have a shortfall of 200,000 units every year. And last year 18,000 homes were delivered. Out of the 2 lakh units, 130,000 is in the Rs 10-40 lakh segment and here there are not even 10,000 homes under construction. So you just see the supply-demand gap.

The cement per sq feet that goes into construction of a Rs 20 lakh home is no different from that which goes into a Rs 10 crore home. But the multiplier effect is much more in the affordable segment because you are spending a much higher amount as construction cost compared with the sale value. So confidence about the continuation of Section 801B — and not making it a year-after-year extension thing —- is necessary. Clarity is very important.

Vakil:
One of the major objectives of Section 80 IB is to give a tax holiday for affordable housing. That would take out the black money from the system.

How is that?

Vakil:
Why does a developer take partly in cash and partly in cheque? If he takes cash, it is not disclosed to the government and therefore there is no tax on it. But when what you disclose is not subject to tax, why would you take cash?

To read more, please, visit dnaindia.com

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Union Budget 2010 -11: stimulus packages must continue

Stimulus Package & Easy Money:

The real estate sector is at crossroads. On a revival path after it went through tough times owing to economic slowdown in the country, the revival, though, is mainly on account of stimulus packages given by government to the economy. The easy-money policy adopted by the RBI, which led to softening in interest rate, also helped the process of revival in the sector.

Industry and real estate players, though, feel any withdrawal in the stimulus packages and hike in interest rate will be counterproductive and will affect revival of economy, particularly real estate sector.

Improve Affordability of Home Buyers:

The government should take measures to improve affordability of end users. To this end, he says government should raise existing slab of Rs 1,50,000 to Rs 3,00,000 against the payment of home loan. This amount is deducted from the assessee's income to compute income tax.

“This limit was set many years ago and needs to be revised to bring it to current levels. This will help people who want to rent their homes. It will induce and incentivise more people to rent their investment properties. It will immediately increase the total available house stock in the market,” says Rohit Gera, Joint Managing Director, Gera developments Pvt. Ltd.

Infrastructure Status to Residential Township:

Real estate sector, including residential township projects , should be granted infrastructure status.

Exemption of Income Tax on the Profit - extension of the 80-IB scheme:

Budget should extend tax concessions to residential sector by allowing exemption of income tax on the profit made by developers in constructing small houses of less than 1000 sq ft in Delhi and Mumbai and 1,500 sq ft in other cities.

This will be a huge incentive to developers to build affordable houses in the country. In fact, it will help contain prices in real estate sector in the country.

Tax break for specific types of housing:

1) Affordable housing units
2) Homes meeting specific environmental standards
3) Special Treatment for Rental property

To read more, please, visit Prabhakar Sinha-The Economic Times

Restore Tax Holidays:

Executive director of KPMG in India, Jai Mavani, said the last six months have seen a turnaround in the real estate segment because of the decision of the industry to lower prices (which re-generated the pent-up demand as homes became more affordable) and banks became more flexible in allowing debt re-structuring which gave a breathing space and holding capacity to many developers avoiding distress sales.

“Now, however, liquidity is drying up as central bankers, including in India, debate the phased withdrawal of the stimulus package. On the other hand, the government is concerned about the inflationary aspects, particularly on the socially sensitive residential sector. That said, there is merit in considering restoration of tax holidays for IT parks (Section 80-IA) and affordable housing (Section 80-IB) in light of the current downturn in commercial property market as well as the significant supply deficit in affordable housing.” To read more, please, visit Dileep Athavale | TNN

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Home buyers may find this Budget friendly

The Budget is round the corner. It’s again that time of the year when expectations get built up for lollies that would be doled out.

Exemption limit for interest:

What about the interest component of the home loan? There is a soft corner for home buyers and they may find this Budget friendly. There could be a raise in exemption limits for interest from Rs 1.5 lakh to say Rs 2-2.5 lakh.

This may be a prelude to kick off the withdrawal of the stimulus as a sop like this could be expected to prop up the property mart and keep the momentum going, despite withdrawal of stimulus. Since real estate sector has deep linkages to scores of sectors, it may make sense to prop it up. Increasing the limits here would hence be a master stroke. I will be surprised if the finance minister does not raise the limit here.

Full exemption?

Government’s professed intention is to provide shelter for all. In line with this and in view of the huge escalation in the cost of housing, the finance minister should consider giving full exemption to the interest component of the loan, in a year, much like it is done in for education loans.

Simplified formula for the rent paid:

Rent paid by an individual is now subject to the one-in-three formula. It can be simplified to just one standard figure, which could be say 3% of the average (property) price in an area.

For instance, the approved rates forsay Andheri (a suburb of Mumbai ) is between Rs 7,000 - Rs 15,000 psf, then the average comes to Rs 11,000 psf. For a 1000 sq ft area home, the rental for a year would come to Rs 3.3 lakh. Any other formula which is simple to understand and adhere should be fine too.

To read more, please, visit Budget unlikely to tinker with the tax exemption limit

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