No ‘resurgence’ for realty sector

According to the latest Economic Survey, the share of the housing sector to the overall GDP is likely to rise by one per cent to 6 per cent on increased investment. Currently, about 5 per cent of India’s GDP is contributed by the housing sector. With institutional credit for housing investment growing at a compounded annual growth rate of about 18-20 per cent per annum in the next three-five years, the housing sector’s contribution to GDP is likely to increase to 6 per cent.

For every rupee that is invested in housing and construction, Rs 0.78 gets added to the GDP. Investment in housing and real estate activities can be considered a barometer of growth of the entire economy. Unfortunately, the 2012-13 Budget does not recognise this. Although the finance minister’s speech concludes by reiterating the fact that there is a need to create an “enabling atmosphere” and that India is on the brink of a “resurgence”, he has done precious little to make that happen.

While the finance minister started his presentation with a candid admission of the fact that India’s GDP has not been growing as it was sometime earlier, and there has been a slowdown, the Budget did nothing much to bring about any significant turnaround. His five-point objective does not really lay any emphasis on the housing and real estate industry. While he has tried to restrict central subsidies to under 2 per cent of GDP to improve the quality of public spending, he has failed to provide for measures which will give impetus to the industry at large, housing and real estate in particular.

The finance minister has permitted external commercial borrowings (ECBs) for low cost affordable housing projects. One wonders if this would do any good, since players in this industry are not used to taking the ECB route for affordable housing projects. This provision therefore does not make sense.

Further, extending the scheme of interest subvention of 1 per cent on housing loans up to Rs 15 lakh (on houses costing up to Rs 25 lakh) for another year also does not make sense, unless and until the limit of Rs 25 lakh is increased.

The Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing finance is a long-term institutional mechanism and would not have any immediate impact on the industry.

The marginal tweaking of the direct tax rates would hardly make any difference in terms of the saving capacities for investment in the housing sector. The rate of withholding tax on interest payments on ECBs for affordable housing is proposed to be reduced from 20 per cent to 5 per cent. This again has little impact on affordable housing projects as envisaged in the Budget.

The only benefit to developers appears to come from the investment-linked deduction of capital expenditure incurred in affordable housing businesses at an enhanced rate of 150 per cent as against 100 per cent. However, this provision, seen in the light of the high land values, particularly in the aftermath of the new proposed Land Acquisition, Resettlement and Rehabilitation Bill, would far outweigh the benefits and only make affordable housing more unaffordable.

Service tax exemptions for housing under the Scheme of Affordable Housing in Partnership would only have marginal impact. The Budget has tried to bring in more money into the infrastructure sector as a whole by doubling the issue of tax free bonds and introduced a new scheme called Rajiv Gandhi Equity Savings Scheme. However, in the case of the real estate industry, he has not done anything.

What ails the real estate industry today? Huge inventory of unsold housing stock has piled up. This needs to move. Home ownership should be encouraged by giving more incentives to home buyers. This has not been addressed at all. Further, developers should also start building more so that enhanced supply can help soften demand. There are no incentives for developers either, in this Budget, to put up more housing. Therefore, on both the supply side as well as the demand side, this budget has belied the expectations of the housing industry in urban India and the home buyers continue to be a hassled lot.  Source>>>