Budget 2019: The reality of realty sector is that is amidst trinity of worst three facts including 1) increasing input cost due to abolishment of ITC and exorbitant development premiums, 2) excruciating liquidity crisis due to NBFC defaults and rising NPA’s of banking sector and 3) piling up of unsold inventory due to weak consumer sentiment on back of high unemployment. It is one of the worst phase for real-estate as an asset class underperforming by leaps and bounds vis-à-vis others.

Hence the wish list of the sector is long which was left ignored in interim budget due to government's focus of populist budget ahead of election. We expect the following changes very essential to revive real-estate: -

1) Lowering of Corporate Tax rate: It is very important that the fiscal stimulus be given to revive the business environment by cutting down of corporate tax rates amidst the shrinking operational margins of developers backed by agony of lack of finance , hiked input related GST and abolishment of ITC , cumbersome approval system with high premiums inducing delay and hence cost run-up impacting operating margins alongside stagnant or dropping prices in some micro market, with a very high tax rates & DDT resulting in poor PAT margins. Hence the need of hour is to lower tax rates to 25 per cent from 33 per cent giving boost to realty players to sustain in the business increasing the project viability which are long run with average tenure of 3-7 years whereby realty corporates have to endure huge uncertainties including market risk and policy risk.

2) Lowering of GST on input side: The move to bring down GST from 12 per cent to 5 per cent overall and 8 per cent to 1 per cent for affordable segment was a welcomed move from the real-estate industry as it helped buyers to move back close to tax incidence of service tax regime however the input cost materials like cement stood at exorbitant GST rates of 28 per cent which ideally should be brought down to 18 per cent GST slab enabling developers to reduce cost of construction as overall Input Tax Credit has been abolished.

3) SRA | GST on rehab & PAP units should be allowed ITC: Since the government has a vision of housing for all by 2022 which includes the contribution of SRA scheme to greater extent in MMR region. The government should allow Input Tax Credit related to cost incurred in construction of Rehab and PAP units which has a high tax incidence almost equivalent to Sale construction hence huge implication on construction cost for the developers discouraging the rehabilitation scheme.

4) Affordable housing for MMR to be redefined Rs 45 lakhs: Government should revisit the carpet criteria of 30 sq. mt. in metros and 60 sq. mt. in elsewhere under section 80-IBA and should bring all categories of affordable housing meant for EWS, LIG, MIG-I and MIG-II under its purview, which permits 100 per cent deduction in respect of the profits earned from affordable housing projects. This will ensure wider project coverage and encourage more developers to avail the benefits of the income tax deduction. This is imperative to achieve the Government target of ‘Housing for All’ by 2022.

5) Inclusion of stamp duty in GST: It is important that government includes stamp duty in purview of GST to boost the demand for housing thus enabling absorption of high unsold inventory across metros.

6) Single window clearances: The cumbersome approval system across different regulatory bodies for development causes delay and does impact the financial feasibility of the projects which is discouraging for developers given they are already time bound by RERA to deliver failing which huge cost penalties are impending apart from thinning margins. Therefore, the government should streamline departments for approvals and clearances in the time bound manner. The move will avoid delays caused by external factors and buyers will get the possession on time.

7) Industry status to Real-Estate: The NBFC fiasco and overall credit crunch of banking system had a domino effect on viability of Real-Estate with access to construction finance largely paused and exorbitant rates of borrowing making project viabilities questionable. Hence it is imperative for government to grant industry status to the entire real estate sector to facilitate the realty developer in raising capital at lower cost.

8) Boost to start-ups by curbing of angel tax: Indian economy will be a truly developing if the start ups hence broader industry of SME flourish creating alpha for the economy. Currently Angel funding is considered as income and is taxed at a full income tax rate of 30 percent. The government should curb or altogether abolish angel tax in the upcoming Budget 2019-20 as it would enable the co-working firms to lease more spaces for start-ups and entrepreneurs. Angel tax is destroying the fostering of start-up business, and indirectly co-working firms would pull away from leasing co-work spaces.

(Author of the article is Parth Mehta, Managing Director of Paradigm Realty)

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