Is the high interest regime a major obstacle for the housing industry?
Under the previous NDA rule, interest rates were ruling pretty high in the initial phase. Subsequently, rates came down. Home loan rates came down from 16-17% earlier to 9.5%. This helped the sector tremendously. During those days, the limit of priority sector homes was Rs 5 lakh for consideration under priority sector lending schemes. It was subsequently hiked to Rs 25 lakh for metro cities and Rs 15 lakh for other cities. You know that homes can not be bought at these price bands in cities. It needs to be hiked further to a respectable Rs 50 lakh in cities like Mumbai, and Rs 25 lakh for other cities.
There has been a lot of talk about the need to hike income-tax benefit on home loan interest payments. Do you think a higher figure will help the sector?
As of now, tax benefit on home loan interest payments is fixed at Rs 1.5 lakh. This means that those who are availing Rs 15 lakh loan can get the entire interest payment covered by I-T benefit. I think the tax benefit against the interest paid on a home loan should be hiked to Rs 5 lakh so that those who buys home on a Rs 50 lakh loan will get the entire interest payment covered in I-T benefit.
The real estate industry is subject to a host of taxes and duties making it more unaffordable. What is your take?
The new government needs to look at rationalising these taxes. For any house, the effective tax component is around 31%, including stamp duty. If you buy a home with occupation certificate (OC), there is no need to pay service tax. But a home under construction invites 4.5% (effective) service tax. This needs to go away.
How do you increase the supply of affordable housing in the country?
Today, it takes around 3-4 years to get all clearances for any new project, and 18 months is an absolute minimum for any builder. This has also led to delay in project execution and a lot of bribery in the system. It's high time that the government introduced single-window clearance, to expedite project clearances, including environment and height clearances, and avoid multiple departments to be approached.
Do you think the Hyderabad example of freeing up FSI will help the sector?
Yes, of course. The government should increase FSI (floor-space index) universally, rather than hiking it selectively. Hyderabad has shown us an excellent example. The Hyderabad government monitors three important factors – road width, fire fighting facilities and car parking. Clearly, this has helped Hyderabad promote affordable housing.
How will the introduction of REITs help your sector?
The market regulator Sebi has already finalised the rules and regulations for Real Estate Investment Trusts (REITs). The government needs to take it up and get it passed. This will provide additional funding to the housing sector. Provident funds and pension funds will be interested in investing in Indian REITs.
What are the other measures that you strongly recommend?
If you let out your house, the rent is added to your income and taxed at the normal rate applicable to you. However, there is a 30% standard deduction from this income, as per the I-T Act. The government should incentivise creation of rental housing stock, by providing higher standard deduction of 50%, instead of 30%. Another important issue is the long-standing demand of 'infrastructure status' for affordable housing and townships. All these policy changes are important to make the NDA promises (25 million urban houses and 45 million rural houses by 2022, the 75th year of India’s Independence) a reality.
Which are the other important projects the government should attend to immediately?
Several road projects worth around Rs 15,000 crore are pending now. The government can push all these projects as quickly as 30 days. That could provide a good start to the new government. I would suggest that the government should pick up five major infrastructure projects in Mumbai. Trans Harbour Link (between Nhava and Sewri), Metro Rail second phase, Navi Mumbai airport, West Island Freeway (coastal highway) and Goregaon-Mulund Link Road. The new government has already promised bullet trains in the country.
Will the Real Estate (Regulation & Development) Bill help the sector?
The bill seeks to bring about more regulations that are not likely to provide more housing. However, I agree that it provides more transparency of the projects to the house buyer. The government should actually draft a housing promotional and regulation Bill. This will monitor government agencies which delay permissions. This may be more useful than a simple regulator, which does not have the teeth to control government agencies.