Affordable housing: Next attractive asset class for investors under Modi govt 2.0?

Published: June 21, 2019 3:22:22 PM

Now that Narendra Modi is back as the Prime Minister of India, it signals a continuation of the new paradigm for real estate in India, with positive changes accruing to stakeholders in real estate.

real estate, Crisis in real estate sector, insolvency, Challenges, changes, RERA, IBC, homebuyers, developersInvestment in real estate is now more secure and safe.
  • By Niranjan Hiranandani

Real estate is among the stable, steady and most preferable investment option. Investors have constantly evaluated the market and have purchased properties with the intention of building wealth. As an asset class, real estate offers growth opportunities in the form of capital appreciation and regular returns on investment (RoI) as rental income. If one considers the lucrative aspect, consider the evolution of REITs, and one visualised a scenario modelled on mutual funds. REITs offer investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive and revitalize. The last couple of years have witnessed significant changes: a sense of transformation, with the Real Estate Regulation Act (RERA) and further enhanced by amendments to Insolvency & Bankruptcy Code, Benami Properties Act and Goods & Services Tax (GST) – this created transparency, financial discipline and customer safety mechanism. It resulted in the reinforcement of trust and confidence among investors. These are the positives from the first term of Prime Minister Narendra Modi.

Now that Narendra Modi is back as the Prime Minister of India, it signals a continuation of the new paradigm for real estate in India, with positive changes accruing to stakeholders in real estate. During the implementation phase of RERA, no one could have visualized the positives it would result in. While there are some points that may not be positive for a certain segment of stakeholders, investment in real estate is now more secure and safe.

The focus on Affordable Housing will most likely continue during the Narendra Modi government 2.0, so this will now become an asset class for investors. When we talk of expectations across various stakeholders in real estate, obviously the new government is expected to deliver in terms of positive steps. Considering that real estate contributes 7 per cent of the country’s GDP and generates 14 per cent of total employment, so investors are optimistic and hope the government real estate initiatives will create a good scenario for RoI.

Another asset class for the investor will be Rental Housing, which is expected to get the necessary attention, as it will help meet the goal of ‘Housing for All by 2022’. Looking at the housing shortage in the country and accepting that everyone cannot afford to have an owned home, India needs to give a big boost to Rental Housing – which will be an opportunity for investors. Among the suggestions to boost this, a 10-year tax holiday for real estate developers on profits earned from rental housing will surely show positive signs to revive investment and boost a slowing economy.

Removal of cap on adjustment of interest deduction on the computation of house property loss will promote new housing stock and promote investment. The high cost of houses and property taxes leads to a low rate of return (ROR) from rental housing, making renting out not that attractive a proposition. To improve this situation, deduction from rental income under Section 24(a) of the I.T. Act can be increased from 30% to 50%.

Furthermore, some old taxation issues need a relook. For example capital gains from sale of house property: to overcome the huge housing shortage, the restriction imposed on investment of sale proceed on acquiring two residential houses should be removed and scope broadened to exempt capital gain tax if the sale proceeds is invested in creating housing stock without any limitation of No. of units both for Individuals, HUF, Corporates and others.

There’s a tax on the difference between Agreement and Stamp Duty Values, under Section 43CA and 56(2)(x) of IT Act. In the case of sale of immovable property, the difference between agreement value and stamp duty value, in excess of 5%, is taxable in the hands of the seller as well as purchaser. This amounts to double taxation. Ideally, the said section could be deleted or, alternatively, the difference of 5% be increased to at least 25%.

The focus on Affordable Housing will most likely continue during the Narendra Modi government 2.0, so this will now become an asset class for investors. When we talk of expectations across various stakeholders in real estate, obviously the new Government is expected to deliver in terms of positive steps. Consider that real estate contributes 7 per cent of the country’s GDP and generates 14 per cent of total employment, so investors are optimistic and hope the government’s real estate initiatives will create a good scenario for RoI.

  • Niranjan Hiranandani is Sr. Vice President at ASSOCHAM. Views are the author’s own. 

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