Bottom Line: The homebuyers and the builders are not always on the same page as far as their wishes and expectations with the Union Budget are concerned.
A friendly budget is always on the wish list of everyone. Across the industries the stakeholders, including the consumers, have more or less the same expectations with the Finance Minister to call it a friendly budget. But in the context of the Indian real estate a friendly budget for the sector does not necessarily mean a homebuyer friendly budget.
The developers for some strange reasons have always been myopic when it comes to budget expectations. On the face of it, they won’t shy away demanding measure that would encourage the buyers. However, anyone closer to the power corridors in the Finance Ministry would be knowing how lobbying has always been for the long standing, often unreasonable, demands for the sector.
On the eve of the Union Budget 2018-19, the question is yet again the same. Whether the budget should be buyer friendly or the builder friendly. Are both the stakeholders on the same page this time around?
To understand this contradiction, let us first see what are on top of the wish list of the homebuyers. These are:
Reduction in income tax slabs
Lower rate of interest on home loans
Reduction of GST
Stamp Duty reduction
Increase in cap on interest and principle deductions
Restriction on loss from house property
Now let us see what a large universe of the developers is lobbying for. These are:
Capital for land investments in the affordable segment
Single window clearance/smoother approval process
Reduction of LTCG Holding Period for REITs
Ashish R Puravankara, Managing Director of Puravankara tries to balance the debate when he says that budget in itself a delicate affair, a tough balancing act of allocating necessary resources to every sector for a nation with such diversity and population. So, the best we can hope for that is something for everyone which is enough for both industry and buyers and no one feels excluded.
“Some the critical concerns with the developer fraternity will lie in the realm of policy implications, approvals and sanctions, and ease of doing business. For the homebuyers the concerns remain of price-points, developer reputation, quality of end product. While RERA may have abated some of these direct concerns, the larger picture of economic stability and also job security is where the common man’s hopes lie with the Union Budget,” says Puravankara.
JC Sharma, VC & MD of Sobha Limited admits that while the sector has seen some forward-looking reforms in the recent past, it still has concerns that needs to be addressed. One of them is the demand for industry status for the sector as a whole. In the Union budget 2017-18, the infrastructure status was conferred to only the affordable housing segment, not the entire sector. With the industry status, the sector will be able to secure funding for their projects at reasonable interest rates, which will spur new launches and better quality projects.
“It will enable developers to deliver projects on time as well. This will, in turn, augment well for employment generation, ‘housing for all’ and build the right eco system. Similarly, the tedious approval process for a project leads to delay in delivery of projects and increase the project cost in the range of 10 to 30 percent. Therefore, it is important to have a ‘single window clearance’, a long-waited demand of the realty sector,” says Sharma.
Aditya Kedia, Managing Director – Transcon Developers maintains that the buyers and the developers go hand in hand. If the Acts like RERA benefits the buyers it gives boost to the sector, increases transparency in the sector which ultimately benefits the sector altogether. The relaxation in income tax for first homebuyers, reduction in the HRA limit, high tax savings on home loan and home insurances are some of the much needed expectations from the homebuyers.
“The root cause of all the delays or cost overrun of various projects are somehow linked with the delay in approvals. Developers expect from the government to come up with some mechanism which makes the ease of doing business a reality for the sector. One Window Clearance and Digitization at larger scale in the sector is the need of the hour,” says Kedia.
The sector has been rhetoric with its oft repeated self-glory that real estate sector contributes significantly to India’s GDP with about 6-7 percent. The housing sector alone contributes around 5-6 percent to this. It also plays an important role in accelerating infrastructure development and capital investment. Further, there are claims that the positive effects of the sector are mirrored amply on the ancillary industries such as tiles, paints, fittings and fixtures, cement and steel etc.
More importantly, the sector claims to be the second largest employment generator in the country. This clearly reflects the critical role played by the real estate sector in driving the economy. Therefore, they assert that it is imperative for an ideal budget to focus on the sector where the impetus is on strengthening the ecosystem by taking care of the interests of developers and the buyers alike.
Unfortunately, in this argument and demand of the sector, the buyer is not at the core of the budget wish list. No one is bothered to address the pain point that the buyers are increasingly deserting the housing market. And the buyers have not much to expect in a financial eco system where de-growth in jobs is a big deterrent in home buying. If only the Finance Minister could address this, most of the issues of the buyers and the builders would be settled.
By: Ravi Sinha