1. Budget 2017: Arun Jaitley must stimulate real estate demand; 5 top changes that can power up sector

Budget 2017: Arun Jaitley must stimulate real estate demand; 5 top changes that can power up sector

REAL estate sector is one of the biggest employment generating sectors in India and accounts for a large portion of employment in the unorganised sector.

By: | New Delhi | Updated: January 30, 2017 1:48 PM
The recent demonetisation drive by the government is expected to have a positive impact on the real estate sector in the long run as it would restrict the flow of black money into the sector. The recent demonetisation drive by the government is expected to have a positive impact on the real estate sector in the long run as it would restrict the flow of black money into the sector.

REAL estate sector is one of the biggest employment generating sectors in India and accounts for a large portion of employment in the unorganised sector. However, in the past 12 to 18 months, the sector is experiencing significant hardship due to slowdown in demand.

The recent demonetisation drive by the government is expected to have a positive impact on the real estate sector in the long run as it would restrict the flow of black money into the sector. This would prevent creation of a real estate bubble.

However, demonetisation has also resulted in a temporary slump in the sector due to overall decline in spending and limited cash availability. It came at a time when the sector was already struggling due to tepid demand and weak consumer confidence due to project delays and unethical practices of developers. The 2017 Budget, therefore, needs to look at various measures to stimulate demand in the sector.

Deduction on loan interest

Deduction of up to Rs 2 lakh is allowed to home-buyers in respect of interest paid on loan taken for house property used for own use. Considering increase in property prices and amount of loan required by an average consumer to fulfil his dream of owning a house of his own, this limit of deduction should be increased to up to R4 lakh. Such a move will help boost demand for residential real estate.

Interest rate subsidy

On December 31, 2016, Prime Minister Narendra Modi announced interest rate subsidy of 3% in respect of home loans up to R12 lakh and of 4% in respect of home loans of up to R9 lakh in urban areas. Considering the average property price levels in tier-2 and tier-3 cities, this scheme needs to be rationalised further. Interest subsidy of at least 2% should be given for home loan up to R20 lakh to give relief to the middle-class residing in these cities.

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Uniformity in stamp duty rates

Though stamp duty is a state subject, the government should bring in necessary legislative amendments for uniformity of stamp duty rates across India and also lower the rates. This will not only improve buyer sentiments but also ensure better compliance.

Industry status for real estate

Giving industry status to construction development and real estate sector and single window clearance of projects are long-pending demands of this sector. Grant of this will ensure easier availability of finance for the real estate sector and help minimise costs and delays due to multiple level approval requirements from various government departments.

Eligibility norms for developers

For ascertaining whether a developer is eligible for industry status and other benefits, qualification/ capitalisation norms should be defined clearly for builders and developers so as to

weed out incompetent developers. Similar guidelines should be issued for local area development authorities to adhere to before allotment of land to builders/ developers. This would help ensure timely completion of projects and improve the overall consumer sentiment and demand.

The writer is partner, Nangia & Co.

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