FIABCI puts forth pre-budget wish list
Bengaluru 24th January 2018: The implementation of RERA, bringing in GST against the backdrop of demonetisation and tightening of purse strings in the economy has extensively squeezed margins of the real estate industry in an already slowed down market scenario. While unsold stock piles up on one side, the tax squeeze continues with new areas marked for compliance. To effectively address this, the FIABCI International hosted a panel discussion on Pre-Budget expectations 2018-19, voicing the views of Bengaluru’s developer community along with other stake holders in the real estate sector for the forthcoming financial year. The panellists included Mr. Farook Mahmood, FIABCI World President and Chairman & Managing Director Silverline Group, Mr. Shankar Sastri, President CREDAI Karnataka and Joint Managing Director Sterling Developers, Mr. Raj Menda, Corporate Chairman, RMZ Corp along with Mr. Rajiv Khaitan, Partner, Khaitan & Co, Mr. K T Chandy, Partner Tax & Regulatory Services, Ernst & Young (India), Mr. Abhishek Goenka, Partner, PwC and Mr. Naresh Narasimhan, Principal Architect Venkataramanan Associates.
Moderated by Mr.Abhishek Goenka, the discussions veered around various issues that impacted thefunctioning of the real estate sector ranging from segments that invited doubletaxation to requirement of adequate incentives for first time home buyers. Thepanel deliberated on a range of specific tax elements that impacted theindustry’s functioning in the current market scenario, requesting clarity onselect legislations and taxes levied, single window clearance for receivingproject approvals, availability of cheaper land for affordable housing,abolition of stamp duty on sale of flats, digitising land records besides ahost of other issues. Commenting on the discussions, Mr. Farook Mahmood, FIABCIWorld President and Chairman & Managing Director Silverline Group said,“There is vital need for changes in current levies and laws applied to the realestate sector. Many lead to double taxation besides pushing up cost. Thecurrent set of regulations also increase the holding cost of the industryespecially in a scenario where developers are finding it difficult to offloadstock. We recommend a more realistic approach in the forthcoming budget, makingboth cost and pricing market friendly, especially in the affordable segment andfor first time home buyers.”
Stating that realestate sector serves as a key contributor to the GDP and is also the fourthlargest employment generator in the country, Mr. Abhishek Goenka, Partner, PwCcalled for extending industry status to the real estate sector. “This willenable developers to raise funds at lower rates which will in turn reduce cost,push up demand and indirectly trigger labour absorption.” Pointing that firsttime home buyers need to be given greater incentives as well as leverage, Mr. KT Chandy, Partner Tax & Regulatory Services, Ernst & Young (India),suggested increasing the limit of interest deduction for them. “Developerscannot be penalised for timely completion of projects. Given variouseconomic exigencies, sales velocity has been low and any deemed tax oncompleted projects would disincentivise attempts by developer to completeprojects on time”
Currently, tax islevied on notional rental income on unsold stock that lies with developersafter a year of receiving completion certificate. Given market conditions, itis not easy to offload inventories within one year and the tax putspressure on builders to dispose flats at a loss. The time frame for levyingthis tax should be increased to two years. Drawing attention to the timeduration for projects such as industrial parks to become operational, which isanywhere between three to five years or more, Mr. Shankar Sastri, PresidentCREDAI Karnataka and Joint Managing Director, Sterling Developers, said,“Surplus cash prevails when funds are not deployed during this duration andthis is normally invested in liquid assets to earn returns. The returns areploughed back into construction, eventually aiding in reducing cost of capitalemployed. Income earned from such investments should be exempt from tax.”
Calling fordigitising land records, Mr. Naresh Narasimhan, Principal ArchitectVenkataramanan Associates stated, “Real estate sector is known for its highrisk given the time taken for receiving the required approvals. It is timegovernment promoted single window clearance and a smoother approval processwithin specific timelines. This will go a long way in reducing the high cost ofcapital as well as project delays, directly impacting project returns.” SaidMr. Raj Menda, Corporate Chairman, RMZ Corp “Land acquisition is one of thesingle highest cost contributors in real estate; In affordable housing wheremargins are thin, government should make available land at a cheaper cost topromote affordable housing.” Added Mr. Rajiv Khaitan, Partner, Khaitan & Co“The existing rate of GST is already high and has pushed up cost of buying. Ina tight market scenario, government would do well to abolish stamp duty on saleof flats. This will reduce the cost and burden for buyers.” The paneldiscussion ended on a positive note, the participants hoping that the keyissues put forth would be addressed in the forthcoming budget, easing the tightmarketing conditions currently faced by the developers.