THE HINDU

Online edition of India's National Newspaper
Tuesday, Jun 09, 2009

Waiting for the Budget: realty sector seeking momentum to spur its growth Realty Check

CHENNAI:The realty sector is looking up to the 2009-10 Union Budget to come up with measures that would provide momentum to further its growth.

“As there is hope of revival of the sector with a stable Union government’s policies, inclusions of appropriate tax concessions in the Union Budget may give an impetus,” said Ramesh Nair, Managing Director-Chennai, Jones Lang La Salle Meghraj.

Business Strategist of Consolidated Construction Consortium Ltd. S. Kaushik Ram said, “The Union government has given a proposal of thrust towards infrastructure spending. The same policy should follow with more innovative fiscal measures to help the construction industry.”

Chairman of Chozha Foundations M.K. Sundaram said, “The inability of officials to solve the ambiguity in service tax continues to be an irritant in many builder-customer relationships. This has to be resolved.

Likewise, the budget should contain measures to infuse life into the construction industry that was recently hit by the economic slowdown.”

Abolition of the service tax on residential projects will be of great help to the customers and builders, he added.

Construction of residential complexes was brought under service tax with effect from June 1, 2005. Normally, a purchaser entrusts construction of the building with the promoter through a contract. Consequently, it was treated as a service and considered taxable.

As customers claimed that the portion of the total cost of construction, excluding land value was a huge burden on them, the issue has created problems, says Mr. Sundaram.

Builders claimed that the circular dated January 29, 2009 clarified that the sale of a flat by a builder or promoter or developer to a purchaser did not fall under the scope of service tax, irrespective of the size of the project.

They said that service tax was levied on all residential projects with more than 12 dwelling units, primarily owing to wrong interpretation of rules.

Residential projects exempt from income tax under Section 80IB were required to get approval before 2007 and the housing units had to be completed by 2010. Similar stimulus schemes can help, says Mr. Sundaram.

The budget is expected to focus on infrastructure creation including roads, ports, airports, urban transportation, telecom and power to give a fillip to sectors such as steel, cement and electricity, and generate employment in the process.

This may give an impetus to housing. But a favourable banking scheme which may help buyers of residential units will end by this month, says an official of the State Bank of India.

As many people continue to expect the realty prices to come down, the response to the special housing loan scheme of the public sector banks was not good, he added.

The home loan scheme was introduced in December last year at “an affordable fixed interest rate of 8.5 per cent for loans less than Rs. 5 lakh. The rate of interest was 9.25 per cent for loans in the band of Rs. 5 lakh to Rs. 20 lakh.”

Officials of public sector banks said that increasing the ceiling to Rs.30 lakh with interest subvention and extending the period will help genuine buyers of houses in metropolitan cities. Many housing units are available in the price band after the price correction, say builders.

Tax concessions, including increased income tax concessions for people opting for home loans, could leave more money in the hands of the consumer and generate demand for housing, said Mr. Nair.

“Initiatives such as tax exemptions for affordable housing, cheaper construction finance, reduction in capital gains for resale of apartments, real estate development to be considered as infrastructure development can be a catalyst of improvement of the construction industry,” he said.

Bankers said that they would revisit their credit growth target depending on the Union Budget proposals.

- Aloysius Xavier Lopez