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Easy clearances, REITs on realtors' mind

Faster project approvals, industry status and implementation of real estate regulatory bill and sops for affordable housing are some of the measures they would be looking in the budget

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The real estate sector, which was profusely bleeding before the new government was sworn in, is still licking its wounds. Close to a year in office for the Narendra Modi government, a revival for the sector looks a little far away.

Indian real estate companies now believe that the next big move should be rolling out of a single window clearance facility.

In the same breath, they demand infrastructure status for the sector, which, they think, will make it easier for companies to access funds required to build the smart cities.

Brotin Banerjee, managing director and chief executive officer, Tata Housing Development Co, feels there is a strong case for single window clearance and an infrastructure status in this year's budget as there is a shift in consumer preference for integrated townships. "Single window clearance mechanism continues to be of high priority for the real estate sector, as delays due to government approvals lead to escalating costs for the developers and delay in delivery of projects," he said.

Mayur Shah, managing director of Marathon Group, and Shailesh Puranik, managing director, Puranik Builders too are optimistic that the upcoming budget will fulfill some long pending demands of the sector, including industrial status and single window scheme to speed up clearances for projects.

"Immediate execution of single window clearance will help in reducing project completion time, thereby bringing down the overall cost of construction. This will help the consumers save roughly 25-40% of the cost. Currently, the approval procedure takes around two years or even more," Siddharth Bhatia, head of marketing, Wadhwa Group, said.

Adding to the wish-list, Rohit Poddar, managing director, Poddar Developers, said there should be a reduction in corporate taxation rates to 25% net for affordable housing; a directive by the Reserve Bank of India (RBI) allowing bank financing for the purchase of land for affordable housing projects and increase in floor space index (FSI) to a base FSI of 2 for all affordable housing projects.

Given the government's ambitious targets for developing smart cities and affordable housing, the initiatives are likely to bring about a sea of changes enabling developers to undertake affordable housing projects.

In fact, such projects are closely linked to infrastructure development and need to keep pace with rapid urbanisation. And with increase in the pace of developments, realtors also feel that the government should incentivise developers and give special benefits for increased usage of green and sustainable technology of construction.

On the demand creation side, given the high interest rates for home loans, an increase in annual deduction (interest on housing loans) from Rs 2 lakh to Rs 3 lakh should be considered as well. Incentivising affordable housing by permitting higher tax exemption limits and concessions for its home buyers needs to be looked into as well. This apart, providing tax breaks specific to rental income will give a significant boost to rental housing segment in the country, and help increase rental supply in the metros.

"Income tax deduction under Section 80-IB is currently allowed to developers to build affordable housing projects sanctioned on or before March 31, 2008. As this date has not been extended, it needs to be re-introduced in the parliament in order to generate interest of developers in low income group (LIG) housing where demand exceeds supply substantially," said Sanjay Dutt, executive managing director- South Asia, Cushman & Wakefield.

"The government should also re-introduce the interest subvention for affordable housing, which was 1% on housing loans of up to Rs 25 lakh for houses that were valued at up to Rs 40 lakh," he said, adding this will have a positive impact on residential sales in small cities and towns and peripheral locations of major metros where such units are available.

The Reserve Bank of India (RBI) monetary policy review left the sector unhappy with no proactive measures to encourage growth for the sector. The RBI's decision to keep the rates unchanged only delayed the process of development. However, the market expects RBI to act rapidly post the budget and take corrective measures that will lead to a meaningful rate cut in the near future.

"We expect the government to bring down the cost of funding for both home-buyers and developers from the present levels which will help the industry overcome the state of negative market sentiments and policy environment. This will surely benefit the sector at large and get the fence-sitters to invest in real estate," said Manoj Paliwal, chief financial officer, Omkar Realtors.

While the approval of the pending Real Estate Regulatory Bill (RERA) was deferred once again recently, it is time now for its implementation thus making the Indian real estate market more attractive for foreign investors.

"The upcoming budget should make this vitally required policy a reality and put an end to the suspense," said Anuj Puri, chairman and country head, JLL India.

The Land Acquisition, Rehabilitation and Resettlement (LARR) Act, formulated and re-formulated several times, has so far failed to counter land-related bureaucracy in India and has to date done quite the opposite. "In its current form, it is a deterrent for developers as well as institutional investors. The real estate sector is desperate to get past this hurdle, because a lot more land must be made available for primary real estate development as well as for infrastructure development.

"Given the new government's focus on 'housing for all', fast-tracking of infrastructure and the creation of 100 smart cities across the country, the Union Budget should present a workable and streamlined LARR Act, with significant relaxation in the currently tedious rehabilitation clauses and other norms," said Puri.

Additionally, fast-tracking of real estate investment trusts (REITs) will help bring in overseas investment funds who have so far abstained from the Indian real estate market because of the lack of regulation, political instability and bureaucratic quagmire.

According to Puri, the new government has the opportunity of making Indian real estate more investment-friendly and attractive by introducing a revised tax code.

"Until vital changes to overcome the tax hurdles, REITs -- which can literally be a life-saver for Indian real estate - cannot take off. In the interest of the real estate sector as well as the overall economy, the budget must address this issue," he said.

While India continues to be an infrastructure deficient country, there is a need to bring in large investments to help bridge the infra gap. "The Union Budget should make more provisions to increase foreign investors' participation in this sector," said Puri.

Wish-list
Enable faster project approvals through single window clearance
Industry status and implementation of real estate regulatory bill (RERA)
Provide on-ground impetus for affordable housing
Tax incentives to boost demand and rental housing segment
Relax counter-productive clausesiIn Land Acquisition, Rehabilitation and Resettlement (LARR) Act
Provide more incentives for sustainable real estate
Fast-track REITs
Encourage FII Participation In Infrastructure

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