Sops fall short of boosting real-estate markets

G P KHUNGAR

True to expectations, finance minister Yashwant Sinha, while presenting the Finance Bill 1999-2000, has once again offered additional financial incentives to home buyers, property developers and housing finance companies. The budgetary proposals are:

House buyers

Enhancing the tax deduction limit from the income of an assessee on account of interest paid on borrowed funds secured on or after April 1, 1999, for acquiring or constructing a home for self-occupation so that the construction/acquisition of property is completed before April 1, 2001. This has been enhanced from Rs 30,000 to Rs 75,000 for the assessment year, 2000-2001, and subsequent years. This effectively means that interest on borrowed funds of up to Rs 5 lakh-view this against the subsisting cost of middle class housing units and the proposal by the minister for urban affairs that the entire interest paid on housing loans be made tax deductible. It is also to be noted that the benefit is limited to investments over the next twofinancial years only.

Housing finance companies

In order to improve the flow of credit for housing, the following measures have been proposed:

Amendments to the National Housing Bank Act with a view to encouraging the development of the primary and secondary debt market. For housing mortgages, it is proposed to simplify the subsisting legal provisions for foreclosure and transfer of property.

Also with a view to strengthening the health and vitality of housing finance companies, changes have been proposed in the Finance Bill itself for treatment of non-performing assets.

Pursuant to the grant of infrastructure industry status to the housing sector of our economy, the finance minister has also proposed doubling of availability of finance for housing by stipulating that the banks should lend 3 per cent of their incremental deposits each year for housing development as opposed to 1.50 per cent at present. This in real terms would mean channelling approximately Rs 4,000 crorefor housing each year, which is barely 5-6 per cent of the sector's financial needs. The ministry of urban housing had proposed a 5 per cent incremental deposit allocation.

In order to promote foreign direct investment in this sector, the government has also decided to permit up to 74 per cent equity under the automatic investment clearance route. However, the ministry of housing is yet to announce its private developer policy.

Targets fixed under the National Housing Bank's `Golden Jubilee Rural Housing Scheme' have been enhanced from one lakh dwelling units to 1.25 lakh dwelling units in 1999-2000. Necessary financial support towards this end will be provided by the Centre.

The National Housing Bank also proposes to announce a scheme in non-ULCRA towns (towns where the provisions of the erstwhile Urban Land Ceiling & Regulation Act were not applicable). The objective of the scheme is to lend to small borrowers at reduced rates of interest.

The finance minister has alsoproposed the abolition of stamp duty on transfer of debt instruments. However, the industry's demand to rationalise stamp duties at low rates on a national basis to eliminate black money from real estate transactions seems to have been overlooked.

Municipal bodies

As the growth and development of housing in urban areas is heavily dependent upon the availability and quality of supporting infrastructure, the government proposes to offer tax-free status to limited issues of bonds that may be floated by municipal bodies to enable them to raise long-term finances at low rates of interest for infrastructure development.

Property developers

To encourage development of housing in metros and cities other than the super-metros of Delhi and Mumbai, the finance minister has proposed that the ceiling on the size of dwelling units qualifying for tax concessions under Section 80 IA of the Income Tax Act be enhanced from 1,000 to 1,500 square feet.

Corporate houses

To encourage corporatehouses to invest in new houses for their employees, the finance minister has also proposed that they be permitted to depreciate their housing stock at the rate of 40 per cent of the residual value annually, instead of 20 per cent at present.

Private developers are indeed a disappointed lot because despite media hype having been created by the urban development ministry that the budget would unfold a package of incentives for private developers, they seem to have been given a go-by. It is time that the ministry addressed the issue of private sector involvement in a purposeful and time-bound manner.

The investment climate in the country depends not only upon the financial incentives that the government may provide to encourage people to invest in homes, whether for self-occupation or adding to rentable stock, but also on the relative security of the ownership rights of the investors and the charges that the owners would be called upon to pay for the services that they may receive from the municipalauthorities in their area. The government is silent on the issue of the promulgation of the Model Rent Act, which was passed by both houses of Parliament in 1995 and also assented to by the President of India in August 1995. No attempt has also been made to rationalise the property tax laws, which are heavily weighted against new owners.

Similarly, the Apartment Ownership Act, which was passed in 1986, has been a non-starter in Delhi for the want of finalisation of rules and the notification of the date from which it would stand promulgated.

In its absence, the Delhi property owners who have invested in apartments continue to occupy their apartments without any legal title. It is time that the ministry of urban development & housing took some positive measures to address these issues.

Although the government has repealed ULCRA through the issue of an ordinance two months ago, no follow-up steps seem to have been taken by any state government. As a result, neither have the pending court cases beenwithdrawn, nor has any additional urban land been released to boost the urban land stock. Unless land is available in plenty, how will land prices fall and houses become more affordable? Till such time as this is done, developers will rule the roost, and despite financial incentives, investors will continue to wait and watch.

The writer is a real-estate consultant_

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