Realty developers not pleased at many Budget details

Raghavendra Kamath & Kalpana Pathak / Mumbai March 6, 2010, 0:47 IST

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.

The Budget announced a maximum tax savings of Rs 20,000
for those earning an annual income up to Rs 5 lakh and up
to Rs 50,000 for those earning up to Rs 8 lakh.
This additional income is likely to find its way towards buying homes.

Says Aashiesh Agarwaal, research analyst at Edelweiss
Capital: “For people getting an annual income of Rs 8 lakh, there will be a saving of 10 per cent, which will increase disposable income and their affordability. This will mean they can pay a higher EMI and be eligible for loans of higher value.’’

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 fo
developers to launch more affordable housing projects.
Why should we?’’ said Niranjan Hiranandani, managing director
of Hiranandani Constructions.

SERVICE TAX WORRY
The biggest worry of developers is re-introduction of service
taxes. In April 2009, the Delhi High Court stayed the tax on
lease rents when some retailers approached it, opposing the
government move to impose it. 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.

OTHER SPURS
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.

However, the hotel industry gave a thumbs-up to the finance
minister’s move to give investment-linked deduction to new
hotels in two-star or above categories.

The benefit was hitherto available to certain states such as
Uttarakhand and Himachal Pradesh; it has been extended to all.

It allows 100 per cent deduction in respect of the whole of any
expenditure of a capital nature (other than on land, goodwill and financial instruments).

“It’s a good measure that will boost investment in the tourism
sector, with high employment potential. Also, the fact that the
benefit is made available to hotels across the board will boost
investment in all categories,” said a Delhi-based analyst.

Budget ‘10 : Relief to Housing Projects & Hotel / Convention Centre

1 March 2010

Relief to Housing Projects

100% deduction on profits from a housing project is available if the project is completed within 4 years from the end of the financial year in which approval from local authority is obtained. This period is proposed to be increased to 5 years.

Further, the current norm for maximum build area for 

each unit is enhanced from 5% of total build up area or 

2,000 sq ft to 3% of total built-up area or 5,000 sq ft,

whichever is higher. This will be effective from Ay 2010-11 onwards

Relief to Hotel / Convention Centre pending 

for completion in National Capital Territory

Deduction to a Hotel / convention centre in National Capital 

Territory is available if it starts functioning on or before 

March 31, 2010. In light of the fact that the Commonwealth 

Games shall be held in October 2010, it is proposed that 

thededuction shall be available even if the hotel / convention centre 

starts functioning before July 31, 2010.

Deductor and collector will continue to issue TDS/TCS certificate

even after April 1, 2010.

Budget-2010:Positive, growth-oriented Budget say realtors

 February 28, 2010 –

Most market segments have welcomed the union Budget 2010. 

Markets and the indices showed their appeasement by jumping to higher points.

As the reactions to Budget start pouring in, 

we bring you quick bytes from the industry leaders.

Anuj Puri, Chairman & Country head, 

Jones Lang LaSalle Meghraj:

“The positive revision in personal income tax rates will

put more money in the pockets of the middle class, 

thereby increasing the buying power and sentiments 

of home buyers. Coupled with the extension

of the 1% interest subvention for affordable housing, 

this clearly is a sign that the residential sector will 

continue to thrive.

We would have been even more grateful for the re-introduction

of the 80 IB (10) tax benefit scheme, first implemented in 2001, 

which was definitely a boost for developers of affordable housing.

Nevertheless, the fact that existing incentives continue to be in place is positive.

The increase in allocation for slum redevelopment to Rs 1,270 crore 

will ensure that key areas in city centres will begin to yield quality

real estate supply. This is of critical importance when it comes to

giving form and logic to the urban landscape in congested cities like Mumbai.”

Union Budget 2010 – Highlights

Pradeep Jain, Chairman, Parsvnath Developers Limited:

“The budget is good for all public in general and for infrastructure

sector, food processing units and the large support to the rural 

development including PPP projects, education and health etc. 

But the developers have looked forward to more sops to bring

housing affordable for all the sectors of the society, however,

we welcome Finance Minister’s move of provision of Rs 700 crore

and extension of 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.

The scheme recognizes that cut in interest rates has an important

role to play in reducing EMIs of borrowers & creating additional

demand for low cost housing. We are of the view that it will encourage

and prompt the developers to give more importance to projects which

will cost upto Rs 20 lakh. However, it would have been more fruitful for

the buyers and developers had the limit been increased from units

costing  upto Rs 20 lakh to units costing upto Rs 30 lakh.”

Mr. RK Arora, Chairman & Managing Director, Supertech Limited.
The budget, this year has both positive and negative aspects for the

real estate developers as well as the buyers. There is a revision in

personal income tax slabs, which will strengthen the purchasing

power of the buyers affecting the demand of the residential sector. 

The common man will also be benefited by the continued subsidy 

of 1% for affordable housing loans, which will help this sector to grow. 

On the other hand, a 2% increase in Excise Duty of cement and steel 

might not prove profitable for the real estate developers as the cost 

of construction would be expensive which will ultimately result in the

increased cost of the project and hence the buyers will be affected. 

Also, it would have been a great support to the real estate sector 

if Section 80I (B) would have been renewed to thrive the

demand of affordable housing.

Mr Kabul Chawla, MD - BPTP Ltd.
Commenting on the Budget announced by the Finance
Ministry today, Mr Kabul Chawla, MD, BPTP Ltd, the leading real estate
player, has said that the budget is stable for over all economic development.
We welcome finance ministry announcement of Sops for real estate,

housing projects extended by a year and one-time interim relief provided 

to the housing & real sector projects. . Norms for built up area for shops

in residential projects have also been changed to benefit residents
Thus, overall the budget will contribute to infrastructure

development across the country.


Mr.Navin M Raheja , Managing Director, Raheja Developers Limited
“The budget presented by the Finance Minister is good for the Indian

economy. We appreciate the decision of Finance Minister to continue

the stimulus package. The budget is focused on the overall infrastructural 

development of the country including the rural sector.

But the Finance Minister has not considered the real estate 

sector’s major recommendations such as status of infrastructure 

to the industry, extension of tax exemption/tax rebate under 

section 80 IB up to March 2011, ECB for real estate etc. 

This would have helped the country to focus on meeting 

the housing shortage in the country as well as improving 

the overall GDP of the country.

Further, we had recommended that the central support under

Rajiv Awaas Yogna should be passed to the party who is

executing the project under PPP instead of passing the

benefits to the state Government/agency which has also

not been considered.”


Mr. Rohit Raj Modi, Spokesperson, Raj Nagar Extn; (NH-58) Developers Association
The budget has been a well balanced keeping in view the fiscal

deficit. The clarity on GST, DTC rollout is welcome. 

On the housing front, we welcome the extension of 

completion time by 1 year for the projects under section 80IB,

however, the extension should be for at least 2 years in the view

of delay in projects completion due to slow down in 2008 and

partly 2009. It was also expected that the 80IB scheme be revived 

so that the mandate of affordable housing could be taken up in right

earnest by the private sector. We welcome the extension of the 

subvention of 1% on loan amounts below 20 lacs.

However it is not enough, the government needs

to up this limit to 30 lacs.