Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Need for a policy to tackle affordable housing demand

The real estate sector and the general populace stand disappointed once more by the budget.

Presenting its last full budget before the 2014 general election, the government was burdened by stubborn inflation and meeting the targets of reducing current account deficit and increasing the gross domestic product. Given that the focus of the present government has supposedly been “roti, kapda aur makaan", the finance minister tried to take care of these basic needs of the voting population by introducing some specific welfare provisions and trying to boost the economy through investments in infrastructure and promoting “inclusive growth".

It was expected that some pressing needs of the real estate sector would be taken care of this time. These demands mainly dealt with recognizing the sector as an industry or at least granting affordable housing the status of an infrastructure sector. The latter is more important given that the government’s own assessments throw up a figure of around 18.78 million units that are in short supply in urban areas alone. However, the real estate sector and the general populace stand disappointed once more.

There have been some measures introduced such as an increase in funding for rural housing as well as the introduction of a fund aimed specifically at urban housing. Additionally, the budget introduced only two key aspects that affect a number of individual property buyers directly.

First, there is a one-time benefit being provided to first-time homebuyers in the form of an additional tax deduction of 1 lakh on interest paid for housing loans of up to 25 lakh, provided the value of the house does not exceed 40 lakh. While this is a very commendable initiative to take care of a long neglected and highly vulnerable section of the society, it is a self defeating one and will end up having a very limited positive impact. This is because it will mainly benefit buyers in small tier II and III cities, where supply in this price bracket is available in the suburbs. In the metros and large tier II cities, units in this price bracket are mostly available in only peripheral areas, usually at a great distance of around 20km or more from even municipal boundaries. Also, most of the projects that cater to this generally get sold out in less time due to the high unmet demand and also because local investors or high net worth investors find this price band very attractive and end up garnering a large chunk of the units to sell later at handsome profits. Finally, since the window of opportunity for benefiting from this is only the present year, buyers looking for units will be hard-pressed to identify suitable units as developers can not just launch new projects overnight to cater to any increase in demand that may take place.

Second, the introduction of a 1% tax deducted at source (TDS) on sale of immovable property priced 50 lakh and above is definitely a welcome initiative to tackle the scourge of “black money" that affects the sector. Many real estate transactions in the country go unrecorded, garnering negligible revenue for the government and giving back very little to the society. Putting the onus of tax deduction on the buyer of the property instead of the seller is an effective way to ensure compliance. This will bring transparency into the sector and also ensure that at least some taxes are being paid for profits made from transacting in real estate. However, a lot of individual buyers are concerned about how the logistics would be managed and whether an individual buyer can really manage this process as most are typically not aware of the modalities of calculating the requisite tax, deducting it and then remitting it to the government in a timely manner. A suggestion to collect this TDS through the registrar’s office at the local stamp office and remit to the revenue department is definitely a good one. The impact of this measure would be visible more in the long term as along with the introduction of the much awaited real estate regulation Bill, there would be more transparency and regulation in the sector.

However, a long-term policy for tackling the ever increasing and unmet demand for affordable housing scenario in the country is still needed and the government must tackle it on a priority. It must stop playing to only certain galleries and realize that if housing needs of the people are met, while there will be many more tangible and intangible benefits for the whole society, even the economy will benefit and meeting targeted growth rates will be easier.

Sanjay Dutt is executive managing director, South Asia, Cushman & Wakefield.

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