Bogged down by sluggish demand for the past two years, the realty sector has been clamouring for incentives, such as the introduction of slab-wise taxation, for home buyers in this year's Union Budget.
"The end buyer is the consumer, and you are taxing the consumer 30-35 per cent directly, apart from the indirect tax; that makes the product unaffordable and the end buyer will hesitate," Irfan Razack, chairman and managing director at Prestige Estates Projects, and member of the infrastructure panel at the Confederation of Indian Industries - Karnataka, told NDTV Profit in a pre-budget discussion. "(For) homes worth up to Rs 50 lakh, a different rate of taxation should apply - for more than Rs 1 crore, there should be a different rate of taxation."
This, experts believe, will also help ease the burden on builders looking to cater to demand in the affordable housing segment. At present, building affordable houses is not a viable business model with delays in projects resulting in cost escalation apart from high taxation, which amounts to nearly 30-40 per cent of the total cost.
"If the government is able to rationalize it (taxes) in some way... you are encouraging developers to build for the lower bracket of income," Mr Razack said.
According to Abhishek Lodha, managing director at Lodha Group, more tax incentives for buyers and some amount of tax holiday for the industry in the area of affordable housing are two specific areas that the finance minister should consider in the Budget.
The sector is also asking for higher exemption for buyers.
"They (buyer) are already contributing not only to the capital deployed, but also to the interest which they are paying up, and therefore, that should not increase their burden, but decrease their burden, after all they are fulfilling a need to get housing," Rajeev Talwar, group executive director at DLF, said.
With the prime lending rate shooting up to 10-11 per cent, the real estate sector is also asking for an upward revision in the deduction limit on income tax for availing a home loan. The current limit of Rs 1.5 lakh was set when the prime lending rate was in the range of 6 and 7 per cent.
Widening funding options is also an important demand from the sector, which is currently not allowed to borrow via external commercial borrowings (ECBs) for projects other than low-cost-housing.
Allowing the entire sector to raise funds via ECBs would be beneficial to the sector, according to Mr Talwar, especially because the rupee has weakened against the dollar.
Mechanisms like real estate investment trusts (REITs) and real estate mutual funds will also ease funding pressure. "... (they) should come under the purview of the central government because that will give a great boost not only to savings but also provide a very meaningful financial vehicle to all developers," Mr Talwar said.
With taxation forming a big chunk of the cost of housing development, the creation of tax-free enclaves via special residential zones (SRZs), along the lines of special economic zones (SEZs), will provide a big boost to the sector, the participants said.
Streamlining the approval process and giving 'infrastructure industry' status are some of the other demands of the real estate sector.
"We are constantly devising rules and regulations which delay projects, which mean a lot of stoppages, and also mean payments. That itself eats into the industry. Therefore, the government needs to give a very clear direction, that yes, it will not only get industry status, but will get 'infrastructure' status," Mr Talwar said.
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