The >realty sector saw itself on shaky ground last year with rising interest rates, liquidity issues, cost escalation and tepid demand, in addition to governance issues.
Therefore, the sector has a long wish list for the Finance Minister to revitalise the industry and rekindle home buyer interest.
Affordable housing is widely expected to be granted infrastructure status, enabling it to gain tax rebate for consumers and developers, ease of borrowing via access to debt lending, ECB and reduced collateral. However, the request to extend the status to the entire housing sector is less likely to happen.
There is a demand for raising the floor space index (FSI) to improve the profitability of affordable housing projects.
Other related requests include releasing land banks to developers or following a PPP model (with government providing land and funding), providing incentives to builders for slum rehabilitation projects, providing subsidised construction materials for low-to-mid-income housing, preferential project clearance and rationalised licence/other fees.
The industry wants tax exemptions for houses with less than 60 sq.m of carpet area and creation of special residential zones (SRZ) and extension of tax holidays on EWS and LIG housing under section 80 IB.
These moves, if they materialise, will help increase viability and profitability by reducing project costs and delays — the main deterrents for developers in this space.
Currently, Smart Value Homes (wholly-owned subsidiary of Tata Housing Development) is active in this segment with others (such as TVS and Mahindra) closely watching developments.
To increase Foreign Direct Investments, the industry wants lower entry limits on size and investment requirements, removal of the three-year lock-in period and providing access to ECB for funding construction costs.
To improve liquidity and to provide exit opportunities to investors, it is suggested to enact legislation on REITs and fast-track the creation of structures such as real-estate funds.
These requests aim to provide much needed liquidity to developers (such as DLF, HDIL and Parsvnath) who are struggling with high leverage coupled with high interest rate and cash flow issues.
To spur growth in the commercial real-estate market, the industry proposes removal/reduction of service taxes on commercial rental income, extension of deadlines proposed under Revised DTC for SEZ to avail the tax benefits (current deadlines – to notify before March 2012, operational before March 2014).
Interest in SEZ has been on the wane and developers such as Unitech and Parsvanath are moving out of this space.