Bedget Wish (CREDAI) - List of Realtors

News Posted - 2010-02-01

The Confederation of Real Estate Developers Association of India (CREDAI) has sought tax holidays for industrial park and housing projects under Sections 80-IA and 80-IB, infrastructure status for integrated township projects and easing of fiscal norms to facilitate borrowings and bringing down the cost of funds.

Industrial parks

In a pre-Budget memorandum, the association has recommended that the time limit for notification of industrial parks under the New Industrial Park Scheme 2008 be extended up to March 2015. The confederation has also asked that emerging industries such as renewable energy be covered under the industrial park scheme.

The scheme notified in January 2008 cover industrial parks under development or those in operation between April 2006 and March 2009. The tax holiday benefit under Section 80-IA (4)(iii) is only for industrial parks notified up to March 31, 2011. The automatic route for approval is available only to those parks with 30 tenants.

The developers have urged the Government to expedite clearance of applications pending under the Industrial Park 2002 scheme. Parks with a minimum of 10 tenants, they say, should be able to opt for the automatic route as large players take up large volume of space and the number of tenants is not a standard measure.

CREDAI has pointed out that the growth in commercial space during 2007 and 2008 was driven primarily by IT and ITeS sectors. But following the slowdown over the last two years, IT spending, particularly in the BFSI sector, has been hit. Occupancy levels and rentals have been hit and new supplies could add to a glut. Medium-term relief is needed on debt tied up in the projects.

Housing Projects

The developers' body has asked for tax holiday for housing projects under Section 80-IB(10) and the limitation of 5 per cent or 2,000 sq.ft of commercial space in affordable housing projects of 1 acre and more be lifted. It points out that town planning authorities and development control rules insist on a minimum of 5 per cent shopping area for layouts of more than one hectare. This would disqualify most projects from benefiting from the tax holiday.

Tax incentive has been provided earlier for lower- and middle-income housing projects under the section. Before the Finance Act, 2009 the facility was available to housing projects approved before March 31, 2007. The tax holiday was available to housing units of less than 1,000 sq.ft in Mumbai and Delhi and up to 1,500 sq.ft in other cities.

But high land and construction costs driven by input costs are making affordable housing projects unviable in the vicinity of developed cities. Developers need the incentive under the 80IB scheme to invest in affordable housing projects which would in turn drive urban development, and support steel, cement, and other construction-related industries, says the memorandum.

The cut-off date for eligibility should also be extended to increase supply of affordable housing units. CREDAI says that the projects approved before March 31, 2007, face a deadline to complete by March 31, 2011. Due to the slowdown in 2008 the projects sanctioned prior to March 2008 should be given a four-year deadline.

CREDAI has also sought for infrastructure status for integrated township development. Like other infrastructure projects, township projects too have a long gestation period and are capital intensive.

Townships are indispensable in addressing the issues related to overpopulated urban centres. They involve a high degree of infrastructure development such as roads, water supply, power and sewage disposal, apart from social infrastructure for education, healthcare and entertainment. A single window approval system should also be put in place to expedite the projects.

CREDAI has sought tax incentives for slum and dilapidated housing redevelopment. The existing law does not provide for specific concessions. To target the benefits of tax exemption to those projects that are aimed at improving social infrastructure, a maximum area per unit could be imposed.

External commercial borrowing (ECB) should be permitted for funding construction costs of real-estate projects which qualify for 100 per cent FDI under Press Note 2. As of now, ECBs are not allowed for real estate due to end-use restrictions and alternative sources for construction finance from banks are expensive.

Special Economic Zones

Developers and co-developers could be allowed to exit from part of notified SEZs through sale or long-term lease of land to strategic investors, says CREDAI.

While the joint developer and co-developer are allowed in the initial stage of the project, there is no provision for entry of a strategic investor. This may be allowed with suitable safeguards such as a ceiling of 50 per cent of the total land for sale or lease to a strategic investor, one-time sale or lease to prevent trading on land, ensuring the original developer is responsible for completion of the project and priority status for SEZ funding.

The non-processing area should be treated as an instrument to raise funds for processing areas by offering higher built-up area per unit of land (floor-area ratio) and tenements in non-processing areas can be sold or leased provided the surplus generated is ploughed into the development of processing area, says CREDAI.

For house buyers

The real-estate developers' lobby has also sought exemptions and incentives for buyers. Exemption from Section 56(2) of the Act relating to payment of stamp duty is needed. It points out that apartment purchase agreements are signed even before the construction commences. But the conveyance is done after project completion which could be 3-4 years down the line when value could be higher. The difference in value of stamp duty and the purchase price is booked as income in the hands of the buyers.

Another concession relates to deduction for principal repayment of housing loans under Section 80C. In addition to the Rs 1 lakh deduction, CREDAI has asked for an additional Rs 2 lakh deduction for self-occupied residential property.

Other concessions for the buyers include reduction in the holding period for qualifying as a long-term capital asset from three years to one year, gain arising from transfer of house property should be taxed at 10 per cent instead of the prevailing 20 per cent as it is a long-term capital asset.

Source : The Hindu Business Line 31/01/2010