For access to funds, real estate sector demands industry status to tackle slowdown

​Prembabu Sharma​

The National Real Estate Development Council (NAREDCO), an apex body of real estate stakeholders, today asked the Government to grant industry status to the real estate sector to enable it to recover from severe slowdown. Industry status will attract large companies and most importantly inculcate “corporate culture” and “industry discipline” which will immensely benefit economy in general and consumers in particular, said NAREDCO President Parveen Jain in a pre-budget Memorandum to the Government.

Mr. Parveen Jain said, most industry rules and regulations are applicable to real estate sector also and denial of industry status for funding purposes to the sector will further worsen the existing financial crunch and slowdown in demand because of erosion of capital and loss of confidence of investors and buyers.

NAREDCO has also demanded “infrastructure status” to the Housing sector, a long standing demand of the real estate developers, by adding a clause to the definition of “infrastructure facility” u/s 80IA of IT Act 1961 and the clause is:

“An integrated township and group housing development on area more than 10 acres involving provision of residential, educational, medical, community, commercial or institutional buildings and creation of required facilities including roads, water supply, water treatment, sanitation and sewerage systems and solid waste treatment and management systems”.

Mr. Jain demanded creation of Special Residential Zones (SRZs) for affordable housing on the lines of Special Economic Zones (SEZs) where special concessions and incentives are in built together with single window clearances. This will help increase supply of affordable housing on a large scale.

Central and State Governments, in the past, have attempted to address large number of issues detrimental to housing growth and provided fiscal concessions to builders and home buyers and tried to build strong public-private partnership to boost housing growth. In many ways it has paid dividends, but still there is lot to be done to provide shelter to all.

Mr. Jain said that the government land, wherever available, should be used as equity and government agencies encouraged to assemble additional land as much as possible. India is short of 18.78 million housing units and 96% of it is in EWS and LIG categories. Government is targeting to build 2 crore housing units by 2022. All this will be possible if land and bank financing is made easy.

He said that Housing Finance Companies be allowed access to long-term funds such as Provident Fund, Insurance and Pension funds as all developing countries have access to such long term funds for housing and infrastructure development. USA and Singapore are classic examples where fund flows from these sectors have helped increase financial resource with long tenor and cheaper funds, he added.

NAREDCO has suggested that banks should be asked to increase their allocation for housing from the present 3% to 5% of their incremental deposit. The additional 2% incremental allocation may be earmarked exclusively for canalizing it through housing finance companies registered with National Housing Bank.

President NAREDCO, has requested government to give push to the real estate sector by increasing the deduction u/s 24(b) of IT Act 1961 to Rs 3 lakh from the current level of Rs 2 lakh of interest paid on home loan on a self-occupied house.

Also, three years period for acquisition or completion from the year of borrowing should be dispensed with, said NAREDCO President, Mr Parveen Jain, adding that this will provide much needed impetus to housing sector which is reeling under huge housing shortage in the country.

He said that priority sector lending need to be extended for home loans upto Rs 25 lakh for rural, small and medium cities, Rs 35 lakh for metropolitan cities and Rs 50 lakh for mega cities. Also, income from renting of properties should be taxed at a flat rate of 10%, he said, adding that high cost of houses and high property taxes lead to low rate of return (ROR) from rental housing, making renting out an un-remunerative proposition.

Mr. Jain said that the residential construction be taken out of 14.5% service tax net in the first place and this exemption should cover the builders and developers who are registered. Rise in excise duty on cement and steel would raise the unit cost by about 4 to 5%.

To promote REMF (real estate mutual fund) and REIT (real estate investment fund), Mr Jain asked the government to make them income tax free at least for 10 years both for residents and non-residents. The world over, REIT have been very effective instrument and source for funding housing projects because of various fiscal concessions and incentives provided by various governments to REIT units and the shareholders.

Demanding external commercial borrowing in all spheres of housing and real estate development, including SEZ projects, Mr Jain said funding to real estate be allowed through FDI, particularly in under construction projects.

The size of Indian real estate market in 2013 was estimated to be approx. USD 78.5 billion which is likely to grow to USD 140 billion by 2017. Between 2009-11, FDI investment grew at 8% but witnessed deceleration during 2012-13 to around 6.5% primarily due to sluggish growth of Indian economy, rising input cost and overall global economic sentiments. Now there is need to give push to this through fiscal incentives.

Mr. Jain emphasized that, given the impetus required, real estate sector has the potential to turn around the Indian economy and contribute to the growth of the country because of its backward and forward linkages with other sectors of economy and huge job potential.