Real estate – more than just brick and mortar

You might still remember your new year’s resolution but may not remember much of Budget 2018, except, of course, LTCG tax on listed shares (courtesy: stock market fluxes). Unlike some of the previous budgets, this year’s budget lost steam way too quickly. This is not necessarily a bad record to set as not every budget has to involve a series of dramatic events and reactions.

As far as real estate is concerned, policymakers will certainly need to make a note of the sector’s ever-changing pace and align themselves in order to get the best out of it. It would be untrue to say that real estate hasn’t been given the attention it needs in recent budgets; however, is it enough or not is the real question.

‘Housing for all’ and ‘affordable (low cost) housing’ are two everyday words in the life of real estate professional. Affordable housing—one of the government’s favourite projects—shouldn’t face any serious threats in the near future. Having said that, the scheme might witness certain challenges.

Amidst all the noise around affordable housing, the ‘aam aadmi’ feels that there isn’t much happening to make housing ‘affordable’. Given the initial success around the National Investment and Infrastructure Fund (NIIF), the government has launched the Affordable Housing Fund (AHF). This fund is likely to have the ability to write big cheques (hopefully at affordable interest rates) and provide the required fillip to the affordable housing projects.

Budget 2018 was certainly tilted towards agriculture and farmers (29 and 27 hits in the budget speech respectively, not counting the Hindi ones). Given the significance of agriculture in a country like ours, the above emphasis seems rightly placed. This move is also expected to generate opportunities for development in the real estate and infrastructure sectors, which will result in the holistic improvement in the overall standards of living of farmers. Access to a sustainable living environment will keep the rural population in rural areas itself and will decrease the pressure on already crumbling urban areas. Policy announcements, which induces such an inherent balance in society, are necessary for the overall healthy growth of the country.

What would you do if you had to pay tax while buying your dream house? Unfortunately, you might have to push the dream of owning your own house to another day. Some respite has been given in this budget in some cases, but in most cases not much has changed. It is really up to the government to recognise that its pricing/valuation of some assets is very aggressive. There is a definite need to align the valuation to market realities and increase the safe harbour (from a meagre 5%) to cover a larger number of transactions. Until then, keep pushing the dream or bite the tax bullet.

The buzz around innovating and ‘doing something different’ have also caught up with the younger generation of real estate entrepreneurs. Co-working and co-living are likely to become the lifestyle beyond 2020. Affordable housing will make way for rental housing and student housing. These are not mere predictions as some of these have already taken off. The government, in its forthcoming budgets, needs to take into cognisance these innovations and empower entrepreneurs through proactive policy measures. These asset classes have dual benefits—that is, high employment generation and higher collection of taxes given the high dominance of services.

Last but not the least, there is an immediate need to increase the ‘green’ quotient in the real estate space and one thing that can certainly help is tax sops. Let’s hope solar-powered houses are not a distant dream.

Most of us continue to live in the same style (with higher standards) and in similar houses as our parents. However, our children will not follow suit as new models of the same ‘brick’ and ‘mortar’ structures gain prominence.

With contributions from Pragya Jha, Manager, Mergers and acquisitions Tax. For further enquiries you can write to Pragya.jha@pwc.com