Budget-2010-Impact on Real Estate

 

Real Estate sector which is slowly coming out of the Mid 2008 slump,
has received good support from Union Budget 2010-11.

While the budget has encouraged affordable housing below
Rs 20 lakhs with 1% interest subvention for housing loan
upto 10 lakhs and extension of  benefits available under
section 80IB by one more year, extension of some services
are extended so as to bring under service tax impacting
the industry in difficult times.

However the industry which asked for industry status
for township projects,


changes in tax deduction on housing loans relaxation of
ECB route to fund projects etc has been overlooked.

Budget provisions

Extended the interest subvention scheme of 1% on all
individual housing loans upto Rs 10 lakh for units costing
upto Rs 20 lakh till March 30, 2011.

Housing projects which are eligible for
benefits U/s 80IB(10) as being approved after
1st April 2005 and before 31st March 2008 by
 respective local bodies will now be allowed to
be completed in five years instead of earlier
4 years from the date of sanction.

The definition of ‘Construction of complex service’
is being clarified/ scope extended that unless the entire
 consideration for the property is paid after the completion
of construction (i.e. after receipt of completion certificate
 from the competent authority), the activity of construction
 would be deemed to be a taxable service provided by the
builder/promoter/developer to the prospective buyer and
the service tax would be charged accordingly.

Definition of ‘Renting of immovable property service’
 as far as service tax is amended to  (i) provide explicitly
 that the activity of ‘renting’ itself is a taxable service.

The change has been given retrospective effect from 01.06.2007.
Similarly the rent of vacant land where there is an agreement or
contract between the lessor and lessee for undertaking construction
of buildings or structures on such land for furtherance of business
or commerce during the tenure of the lease will now be levied service tax.

Excise duty on cement (produced by non mini cement plants)is
increased to Rs 290/ tonne (from Rs 230/ tonne) if retail sale
price is not exceeding Rs 190 for 50/ kg bag or Rs 3800/ tonne
or 10% of retial sale price (from 8%) for cement if retail sale
price exceeding Rs 190 per Rs 50 kg bag or Rs 3800/ tonne.

In case of cement sold other than packaged form 10% or Rs 290 per
tonne which ever is higher compared to 8% or Rs 230/ tonne.

Excise duty on steel, PVC pipes, ceramic tiles increased from 8% to 10%.

The surcharge on corporate tax has been reduced from 10% to 7.5%
while MAT has been hiked from 15% to 18%.  This should benefit
many real estate companies, as most of them are outside the
purview of MAT, but will benefit from effective reduction in corporate tax.

Impact analysis

While the hike in excise duty on cement, steel and other inputs
 will pinch the industry at a time when the demand is on slow
recovery path, as the industry could not afford to pass on the
 same to the homebuyer.

However the industry players who have got their 80IB (10) eligible
projects delayed can take comfort with the time for completion being
 extended to 5 year from current 4 years. Moreover interest subvention
scheme of 1% on all individual housing loans upto Rs 10 lakh (Rs 1 million)
 for units costing upto Rs 20 lakh (Rs 2 million) till March 30, 2011
 is a positive move to encourage affordable housing units costing upto Rs 20 lakhs.

Since real estate sector is more interest sensitive this 1% subvention
 will reduce the EMI significantly and improves affordability.

Further more and more developers will conceive projects in this
 price segment to tap the potential auguring well for the sector
on a whole. However the impact of bringing rental of vacant land
into service tax as well as other changes in service tax has to be seen.

Since the demand for real estate being a derived one,
the growth thrust as well as more money on middle class
individual will benefit the industry by way of demand pickup .

Real estate players line up demands from Budget ‘10

14 Feb 2010, 0416 hrs
  Pallavee Dhaundiyal Panthry,

Developers are re-calculating the upwards swing in the real
 estate industry, especially housing, provided Government
 pays special attention the
sector. Various developers voice their expectations
from Budget 2010.

AVNISH AGRAWAL, DIRECTOR, MERITON GROUP

Talking from common man's perspective, the bank interest
rates should be stabilised. Most importantly, stamp duty
 should be reduced as it puts financial burden on the buyers;
it would be a real relief for the common man who has to bear
the burden. Besides, for the new projects many clearances are
required; if they can be done through a single window,
 it will be a major breakthrough.

VIJAY JINDAL, CMD, SVP GROUP

Expectations from the budget are very high. We
need something that will help the real estate sector
 to grow leaps and bounds. Government should take steps
 to bring more transparency and simplicity to the processes
 involved in the real estate. Affordable housing must get
maximum support from the government. The authorities must
understand that the demand is for affordable housing and
 we need to bridge gap between demand and supply.

ABHISHECK LODHA, MANAGING DIRECTOR, 
LODHA DEVELOPERS LIMITED

We expect the finance minister to provide specific tax incentive
and rationalise stamp duty registration charges, which will
lead to further investment in affordable housing projects,
which would in turn drive urban development. The budget
 should make high-priority provisions for the laying down
 of the necessary infrastructure so that new areas can be
opened up. This should result in creating and linking up
satellite settlements to main cities that will help tackle
 the demand-supply mismatch.

Further, we look forward to flexibility in FDI norms.
 Additionally, the budget should offer clarity on the
introduction of a real estate regulator, which may not
necessarily decide on rates, but should put down firm
 principles in terms of property dealings and also
quality parameters in terms of rating of constructions.

RAJIV SINGLA, MANAGING DIRECTOR, MAPSKO GROUP

Indian real estate sector is passing through a transition
 phase, where every eye is lying on budget 2010 as the tool
 to heal the loss. The finance minister needs to focus on
offering easy interest rates with more flexible EMIs so that
 middle class people can come forward to buy their dream house.
 We should also target foreign investors or NRIs to invest their
 money in India.

Ashwini Prakash, executive director, Paramount Builders

I expect a lot from the budget 2010-11 as it can be used as an
important step by our government to bring real estate market back
on the track. I strongly feel that finance minister would certainly
 work on promoting real estate investment through various
 fiscal tools like, continuing income tax rebate on home loans.

And at the same time interest rate on home loans should be
made more affordable to bring it up to the reach of a common man.
 In the last two years IT sector and the real estate sector
have been the most affected areas and in order to reconcile
the earning capacity and to build a sense of security for
 citizens the government should offer some aid packages to
these sectors in Budget 2010 like the US government did.

J K JAIN, CHAIRMAN, DESIGNARCH

The budget must think seriously on decreasing the excise duty
 to decrease the costs of infrastructural projects.
The current economic situation requires the sector to be
 revived so that the demand for the housing industry increases.
To achieve this, the government must look at reducing the
property and related taxes along with the taxes on cement and
steel, which together contribute to the growing infrastructure
needs.

Realtors want govt to continue with reforms

Devesh Chandra Srivastava

FEB14,2010

Real estate players have called upon the government to continue with its reform agenda in Budget 2010. Cash-starved realtors are also looking for more sops to be able to roll out new affordable housing projects and integrated townships. Developers under the aegis of the Confederation of Real Estate Developers Association of India (CREDAI) have already met finance minister Pranab Mukherjee and put forward their demands. Pradeep Jain, chairman of Parsvnath Ltd, and president of CREDAI- NCR, said, "In order to support developers' efforts to promote LIG/ MIG housing projects, there is an immediate need for a tax holiday under section 80- IB (10)." Realtors also feel that easing the burden on buyers' pockets will help increase the sales in the upcoming affordable projects. As Rajeev Talwar, group executive director, DLF Ltd, said, "My demand would be to empower the buyers through more sops on housing loans. Lowering of home loan rates could be one of the measures. The government should continue the reforms." Apart from LIG/MIG housing projects, developers have been demanding tax holiday for industrial parks under Section 80-IA (4) (iii). Growth in the commercial space during 2007 and 2008 was primarily driven by IT and ITeS sectors. But because of the slump over the past two years, IT spending, particularly in the banking, financial services and insurance (BFSI) sector has been hit. This resulted in reduced offtake of space and increased vacancy. The tax holiday would give the much- needed support to the commercial sector. Some others believe that funding options for the real estate sector should be opened to beyond institutional investors. Anuj Puri, chairman and country head, Jones Lang LaSalle-Meghraj, said, "With the investment climate once again turning favourable in India, the Budget will also have to address the long-pending issue of real estate mutual funds (REMFs). Also we'll welcome a budget that finally and decisively enables the entry of foreign direct investments ( FDIs) into the real estate sector." According to the existing rules, FDI in real estate sector has a three- year lock- in period. Recently, the finance ministry rejected a proposal by the department of industrial policy and promotion (DIPP) to drop the three- year lock- in. Responding to a draft Cabinet note circulated by DIPP in November, 2009, the ministry said the lock- in acted as a deterrent, checking speculation and shielding the sector from sudden flight of capital during times of crises, such as the global meltdown in 2008 when foreign institutional investors pulled out $ 5 billion from equity investments between September and October. REMFs could prove beneficial for the commercial real estate sector. Indirect property owners, who own small shares of buildings through structured investment products or real estate investment trusts (REITs) can be direct beneficiaries. Abhishek Lodha, MD, Lodha Developers Ltd, said, "We look forward to flexibility in FDI norms as well as forward momentum for REMFs/REITs as good alternatives to address the issue of capital funding requirements for high- end projects."