Hike in Service Tax to push cost of housing up
Given that the Real Estate sector contributes around 6-7 per cent to the GDP of India and is one of the highest employment generating sectors, the lack of patronage by a seemingly forward looking Budget is surprising. Universal demands of Industry status, land title transparency, ease of approvals process, etc have yet again not been addressed comprehensively. The sector which could have played a major part in triggering the economy seems to have been side-lined for the time being.
Abolishment of Wealth Tax and consequent yearly taxation of long-term investments, is an incentive to added investments by certain sections of the middle and upper middle class.
The introduction of the Benami Transaction Bill will bring a large amount of transparency in land transactions with punitive measures discouraging dubious deals and black money generation. The probable reduction of investors as opposed to end-users in the sector could result in the eventual cooling down of the market leading to rational valuations and increased end-user demand. Impact of the same will, of course, be dependent on the level of enforcement of the bill by the government in the near future.
The increase in Service tax by 2 per cent will impact the overall cost of housing at the buyers hand which is already sluggish. As Goods and Services Tax (GST) implementation is targeted at 2016, buyers in the interim period will not avail of any price reduction in cost of materials.
The clearance of rental income tax pass-through for REITs with a rationalisation of Capitals Gain Tax and applicability of Securities Transaction Tax for the sponsor are steps in a positive direction to increase cheaper funding to the sector through monetisation of rental assets. The increased liquidity should stimulate growth of urban infrastructure.
Pass through status as well as opportunity for foreign Investor participation in AIF, Prospective applicability of GAAR from 2017 are incentives to attract foreign funding in the immediate future.
On a generic level, the Government has set a target date by announcing ‘Housing for All’ by 2022. A roadmap for the same is now to be developed and impact of the same will be evident in the long term.
The focus on Infrastructure growth, (via fund allocation and introduction of tax free bonds) and empowerment of individual State economies will lead to both, increase in employable work force and demand for housing and urban infrastructure. Skill mission enhancement will develop an enhanced skilled work force.
Lowering Corporate Tax by 5 per cent in the next few years should help to attract investments from domestic and foreign companies in Real Estate Development. The increase in industrial expansion with its resultant employment boost is expected to be stimulus for growth in the Real Estate sector.
Author’s Note: Lalit Kant, Executive Vice President-Real Estate is a post-graduate from the Delhi School of Economics and a Certified Associate of the Indian Institute of Bankers. He has over 32 years of experience in the banking industry. In his initial years he was with SBI at various centres and was associated with product development at the Corporate Centre. He has worked with Siam Commercial Bank, PCL, (a leading bank of Thailand) for over 16 years; served as General Manager and Country Head, India.