Budget 2018: Hit hard by demonetization and some policy reforms like the implementation of RERA and GST, the real estate sector is betting big on the Union Budget for revival of its fortunes.
Budget 2018: Hit hard by demonetization and some policy reforms like the implementation of RERA and GST, the real estate sector is betting big on the Union Budget 2018 for revival of its fortunes and is looking towards Finance Minister Arun Jaitley with much hope. Developers say support from the government as well as further stimulus are needed for the sector to get out of the current slump, particularly in the housing segment. Thankfully, the commercial office market in NCR has done significantly well in 2017 with the overall leasing activity at around 8 million sq ft (Grade A gross absorption), occupying an 18% market share, next only to Bengaluru.
“In addition, 2017 saw some fantastic trends in the commercial office segment like increased occupier sentiment leading to pre-commitments in under-construction projects, emergence of co-working space category giving more choices to office occupiers, influx of international PE players/developers in acquiring/investing in operational commercial office assets and the likes,” says Vineet Anand, director-office services, Colliers International India.
Keeping this in view, the potential areas where the Modi government and FM Arun Jaitley can focus on in the upcoming Union Budget are as below:
1. Incentives for green buildings: Given the amount of construction activity in the region and its impact on the environment, an emerging trend is being witnessed wherein Grade A office occupiers are willing to lease buildings that are more environment friendly, with efficient designs and more viable from an overall operating cost perspective. “While some of the developers in NCR have already invested in green buildings, there are many others who are not able to due to higher cost of construction. FM Arun Jaitley can help the developer fraternity by giving additional tax benefits and incentives, thereby making a significant growth towards this initiative,” says Anand.
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2. Increased focus on infra development in Tier 2 & 3 cities: 2017 also witnessed an interesting momentum in office space leasing activity in the tier 2 & 3 cities in the northern part of the country such as Chandigarh, Mohali, Jaipur, Lucknow etc. Many Grade A office occupiers, including the co-working space segment, have started looking at these cities as potential business outlook and areas for expansion. The Modi government should allocate funds in the Budget 2018 for development/ redevelopment and partner with private players through various incentives to further boost these cities and help them emerge as an alternative and key smart cities of the future under the ‘Smart Cities’ campaign.
3. Incentive to first-time home buyers: At present first-time homebuyers can claim an additional tax deduction of up to Rs 50,000 per financial year under, provided certain conditions are fulfilled. “Section 80EE of the Income Tax Act, works in favour of the first-time homebuyers as it provides an added tax benefit of Rs 50,000 on the home loans sanctioned during the Financial Year 2016-17. This benefit should be extended this year as well to boost the buyer sentiment. There is need for tax exemption to be increased in the Budget 2018 so as to incentivize the first-time homebuyers,” says Vineet Relia, MD, Sare Homes.
4. Hike in standard deduction on rental income: Some developers feel that FM Arun Jaitley should also increase the standard deduction limit on rental income, which is currently 30% of the Net Annual Value of house property, to at least to 50%. “There is need to increase standard deduction limit on rental income, which will induce more people to own a house,” says Rahul Singla, director, Mapsko Group.
5. Deduction of Interest on Home Loan
Currently interest on loan taken for acquiring or constructing a home is allowed as deduction up to Rs 2 lakh. Pre-construction interest (which is allowed as deduction in five equal installment from the end of financial year in which construction is completed) is also included in overall limit of Rs 2 lakh. “Considering the increase in property prices and corresponding increase on higher loan component, the limit of Rs 2 lakh needs to be increased to Rs 4 lakh, which will boost the emand of real estate,” says CA Gopal Bohra, Partner Direct Tax, N. A. Shah Associates LLP.
6. Deduction of home loan interest on let out property
In case of a let out or a deemed to be let out property, the entire interest was allowed as a deduction under Section 24 till the Financial Year 2016-17. “From the Financial Year 2017-18, deduction for interest on the let out property was allowed only up to Rs 2 lakh, which should be brought back to its original level,” says Niranjan Hiranandani, President, National Real Estate Development Council (NAREDCO).
Apart from these, there are many other incentives and sops which developers are expecting from the Budget 2018. For instance, single window clearance, reduction in stamp duty and infra status to the housing sector are some of the other long-pending demands of the sector.