Real estate seeks industry status

The real estate industry has been facing some rough weather given the tough demand environment, which got aggravated further with the recent NBFC crisis. While the industry undertakes measures to revive demand, a much-needed impetus from the Union Budget will go a long way in helping turnaround the fortunes of the sector. Considering the current set of challenges, here are a series of recommendations that we believe will help the cause of real estate sector in general and housing demand in particular.

‘Industry Status’ to real estate Real estate is one of the major contributors to the economy supporting various ancillary industries and providing employment to millions directly and indirectly. Growth in real estate has a multiplier effect on the economy. Despite such strong fundamentals the government does not recognise real estate as an industry.

It is time that real estate gets industry status. This will enable developers to raise funds at lower rates and reduce their cost of capital, which would eventually have a bearing on overall project cost. The move would provide a fillip to the stress-stricken sector amid the reforms-driven new order.

GST on overall real estate: Abatement for land should be increased to 50 per cent.

The single-tax regime in India ushered in additional cost pressure on real estate. Presently real estate falls under the 18 per cent tax bracket of the Goods and Services Tax (GST) Act with 1/3rd abatement for land taking the effective tax rate to 12 per cent. However, in major metros, the share of land is more than 50 per cent of the project cost. We therefore recommend that the government aligns this with market realities and accordingly increase the abatement for land to 50 per cent thereby bringing down the effective tax rate to 9 per cent.

GST on affordable housing: Abatement for land should be increased to 50 per cent.

‘Housing for all by 2022’ is one of the pet projects of the government and it wants to deliver 10 million houses under this program. Out of 10 million, 95 per cent are to be constructed for Economically Weaker

Sections (EWS) and Low-Income Groups (LIG). As the affordability of this segment and the house value is low, the impact of the slightest upward cost pressure is magnified and becomes a deal breaker. The current GST rate of 12 per cent coupled with 1/3rd abatement for land, making it an effective GST of 8 per cent, is adding huge upwards pressure on the overall cost of house.