HOUSING FOR ALL - Naidu wants states to play ball
In order to promote affordable housings, the Union government has proposed to exempt the registry of affordable housings from stamp duty which varies from 4% to 12% of the transaction value.
12% of the transaction value.
M Venkaiah Naidu, Union minister of Urban Development, Housing & Urban Poverty Alleviation, said he has written to all the state governments to exempt affordable housings from stamp duty. Stamp dut ty is a state subject and each state government fixes its rate and collects it.
Naidu said the Union government would ensure that there is no net tax escalation on housing sector, especially on the affordable housing segment, after the implementation of GST, while addressing a two-day conclave of the country's apex real estate developers' association, Credai, earlier this week.
“I assure you that GST will not lead to an increase in prices, certainly not for the affordable housing segment,“ Naidu said. “We have already exempt ed affordable housing from service tax and my ministry is addressing the need to continue this exemption under GST. We have recommended to the finance ministry to tax the sector at a rate which is revenue neutral and not at a higher tax rate. Input tax credit will be available, thus creating a huge incentive to bring all transactions in the sector within the formal system,“ Naidu said.
However, he expressed concern over the opposition in certain quarters for the inclusion of the real estate sector in GST and said that the GST council has to take a view on this matter. He clarified that inclusion of the real estate sector in GST would help the cause of this sector. Service tax is levied at the rate of around 5.35% of the sale price of a flat.
On land prices, Naidu asked developers to incorporate new practices and change their mindsets. “We need to introspect over the rocketing inflation in land prices, with rates in Hyderabad and Vijayawada on a par with New York and Paris, making it impossible to make houses affordable there. All real estate transactions must be made digital, a healthy practice that will make it possible for banks to disburse housing loans easily,“ Naidu said.
“We are also working on a policy of incentives and disincentives. States working in compliance with reform measures like accountability, transparency, and swift approvals, will be given additional money under allocation,“ Naidu said. On stamp duty, the minister expressed helplessness: “States have in their wisdom not adhered to inclusion of stamp duty under GST. Thus, we need to move forward from this debate. We have taken this up the state governments to rationalize stamp duty and waive it altogether for affordable housing.“
Stamp duty and service tax, put together, account for between 10% and 18% of the value of a property. As the ticket size in real estate is large, such a huge tax rate will become a huge burden and would discourage buyers, especially in the affordable segment. Therefore, waiving off both will be a big relief to buyers.
Naidu said implementation the Goods and Services Tax (GST) and the Real Estate (Regulation and Development) Act, 2016, and through it the creation of a Real Estate Regulatory Authority (RERA) in each state and Union territory would ensure transparency in the sector, which would improve credibility of developers and help the sector.
“Once we acquire positive character, it will lead to credibility and this would translate into the much required confidence of buyers,“ Naidu said.
On top of all this, interest subsidies announced by Prime Minister Narendra Modi under Pradhan Mantri Awas Yojana (PMAY) will go a long way in reviving the sector and help developers to make it a world-class industry. The scheme contemplates an interest subsidy at the rate of 4% for loans up to 9 lakh for those having a household income of up to Rs 12 lakh, and an interest subsidy at the rate of 3% for loans of up to Rs 12 lakh for those with a household income of up to Rs 18 lakh.
The scheme of interest subvention for Economically Weaker Sections (EWS) and Low-income Group (LIG) already exists under the PMAY with 6.5% interest subsidy for loans of up to Rs 6 lakh.
Under these schemes, the EMI on a 20-year loan will be reduced by around Rs 2,200. If one calculated the upfront benefit, it would be around Rs 2,50,000.
Naidu advocated for complete transparency in the real estate sector, exhorting the developers to work harder to change its character and turn it into a world-class industry. “But, for that to happen, developers need to change their outlook and mindset and come out with new business principles and models,“ Naidu said.