Affordable housing still up in the air

The real estate sector had high expectations from Budget 2013, particularly for affordable housing. However, they mostly remained unfulfilled.

In fact, the sector, which is not only the largest employment creator but also a major growth driver, has been left almost ‘untouched’ barring a few policy and tax announcements. The cash-strapped sector has once again been left without the coveted ‘industry status’, which would have enabled it to access debt at improved interest rates and reduced collateral.

The additional deduction of interest up to Rs 1 lakh for first-home buyers for loan not exceeding Rs 25 lakh and property value not exceeding Rs 40 lakh is welcome. Although it is expected to stimulate investment in low-cost housing, it may hardly be an incentive to buy a house (especially in metros) given the current interest rate levels and housing prices.

Taking cue from his predecessor, in order to collect tax at the earliest and have a reporting mechanism for real-estate transactions, Finance Minister P. Chidambaram has once again proposed one per cent tax deduction at source on payment for an immovable property (other than agricultural land) valued above Rs 50 lakh. This may have an immediate cash-flow impact on real-estate developers selling projects to innumerable buyers. Further, it may result in more compliances for buyers paying in instalments. The rules on the manner of deduction and deposit of such tax are awaited. It remains to be seen whether this proposal makes its way to the ‘Finance Act’ unlike last year where a similar provision in Finance Bill 2012 did not find place in the Act.

Adding to the woes, a new deeming section — 43AC — is being proposed for taxing sale of land or building held as stock-in-trade at the “circle rate” when the consideration is below the stamp duty value. Until now this provision applied only to transfer of land or building held as a capital asset — that is, the much-dreaded section 50C. Extending it to “stock-in-trade” would only increase tax outflow in the hands of the cash-deprived developers, who usually classify land and building as stock-in-trade in their books and frequently make inter se transfer within the group to consolidate land parcels for development.

On indirect tax too, much of the industry expectations remained unfulfilled. These included clarity on many issues under the negative list regime of service tax, reduction of excise duty on cement, and exemption from service tax for affordable housing. In fact, there would be increase in service tax from 3.09 per cent to 3.71 per cent for flats with carpet area of 2,000 sq ft or more (valued at Rs 1 crore or more). This also implies developers have to disclose the carpet area to customers. Further, the two-fold increase in excise duty on marble from Rs 30 per sq metre to Rs 60 could also enhance construction cost.

No steps have been taken to address long-standing demands such as removal of the cascading effect of stamp duties and rationalisation of stamp duty rates, a single-window clearance mechanism for approvals, implementation of the Real Estate Regulatory Bill, and liberalisation of foreign direct investment, or FDI regulations for the sector. The sector is left wanting on tax incentives, especially in the affordable housing space, and tax measures to increase the disposable income of individual buyers. An excellent opportunity to provide the much-needed boost to industry which, in turn, would have stimulated growth in many allied industry segments, has been missed.