Gurgaon, 25 Feb 2016 - Colliers International India’s 2016 pre-budget poll survey for real estate sector revealed a mix bag reaction from real estate stake holders; including developers, investors and end users, who anticipate a realistic budget for the real estate sector. The survey touched upon various key issues like REITs, SEZs, rental housing, tax subsidies for housing and single window clearances, etc. of which respondents are optimistic on various issues to get addressed by our Finance Minister (FM), during Budget 2016-17.
High expectations on Removal of DDT
In the last two budgets, the Government has eased the path for Real Estate Investment Trusts (REITs) listing in India by providing pass through status for rental income and rationalising capital gains for the sponsors exiting at the time of listing of the units of REITs and InvITs, subject to payment of Securities Transaction Tax (STT). We have seen an increased appetite for ready commercial assets among large players, where few large players are chasing the limited Grade A REIT ready stock, but still there is no REIT launch in the market due to various tax issues. Dividend Distribution Tax (DDT), is considered to be one of the biggest hurdles that is left in making REITs financially viable for Indian commercial stakeholders. Our survey reveals, about 61% of the respondents feel that the government will provide exemption from DDT, so as to make REITs a reality.
MAT on SEZs should be shown the door?
One of the major changes the industry was expecting in the SEZ policy was the removal or reduction of Minimum Alternative Tax (MAT). About 50% of our respondents feel that the government will either reduce or remove the MAT on SEZs in this Budget. The rollback or reduction of MAT, however, looks unlikely as earlier the FM had mentioned that companies are making huge profits and distributing dividend to their shareholders, but were not paying any income tax due to the large number of exemptions and deductions available under the Income-Tax Act. Having said that, in the last budget speech, the FM had proposed to revive Special Economic Zones (SEZs); to make them effective instruments of industrial production, economic growth, export promotion and employment generation. This statement was widely welcomed and seen as a positive statement of intent to revive developer and investor interest in SEZs. However, since then, nothing concrete has been announced.
Rental Housing- Time for some incentives!
There have been a lot of talks around rental housing. Colliers asked respondents whether there will be any push for rental housing in this budget, in the form of incentives. The survey revealed a mixed result, with diverse opinions, with about 45% of the respondents not expecting any change in incentives. Most of them were of the opinion, that as it will only promote second home market, last year, Ministry of Housing and Urban Poverty Alleviation (MoHUPA) had come up with a draft ‘National Urban Rental Housing Policy (2015)’. The policy primarily encourages social rental housing (which means rental housing where the rent is set at a level below the market rates) to make it affordable for poor people (EWS and LIG). It does not provide much direct benefit for Market Driven Rental Housing (MDRH).
Go ahead on single window clearance
While real estate is a state subject, bringing consistency and efficiency in the approval processes is an initiative that the Central Government should drive by incentivising the state governments to stream-line and standardise their approval processes within a specified timeline. With so many projects facing delays because of delay in clearances, technology enabled single window clearance is only solution forward. When we asked if the govt. will take any concrete steps to enable single window clearance, around 53% expect that the industry may need to wait for a little while longer for this to fructify.
Paying heed to credit linked tax subsidies
For a question on credit linked tax subsidies, about two thirds of the home buyers were positive on getting some kind of incentive in this budget. Most of them were looking for an extra incentive for home loan principal repayment, which is currently included in the rebates under section 80C of income tax. Some of them were expecting that the interest on home loan would be allowed for deduction to the extent of full interest paid at least in respect of one house. Currently, a 100% deduction on home loan interest for rented houses is available while owner occupied houses are eligible for only INR 2.0 lakh deduction under 80C. We also think that the rule should be rationalised and deductions available should be 100% of interest for both rented, as well as owner occupied houses.
With the budget scheduled to be announced on 29 Feb 2016, we hope positive changes for real estate industry with maximum tick marks on the wish-list for real estate sector.
By Surabhi Arora, Senior Associate Director, Research Colliers International
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