Relief in home loans and small homes, urban infrastructure priorities in real estate

Q. What should be Narendra Modi's priorities in real estate?
 
A. I think there are a few things he will take up.
 
First of all, he needs to change the home loans prioritization, which is now 10 lakhs, to at least Rs 25 lakh for small towns and Rs 50 lakh for metro towns like Mumbai. This is because no house is available for a lesser sum. Home loans up to that amount should be made priority so that banks can take that as priority lending and lend at lower rates.
 
Second, we need to change tax relief for home loans. It was Rs 1.5 lakh 10 or 15 years ago. Now it needs to be increased to the extent to which interest is required to be paid for home loans. That should be allowed as deduction. Or it should be increased immediately to Rs 5 lakh interest, from the existing Rs 1.5 lakh.
 
Third, we need to reintroduce tax-free status for small loans. This had been introduced, but it was scrapped because it was misused by builders. But you need to reintroduce it so that persons who do small housing benefit. If it is misused, the government should simply do an assessment of the tax paid, and any time they find it being misused, they must tax with penalty. There's nothing wrong with that approach. Just because there was some misuse during that time, you can't withdraw a benefit for the common man.

Q. On infrastructure, what are the priorities?
 
A. We need to take care of the special economic zones (SEZs). The government had said the SEZz would be tax free for 10 years. But they actually introduced tax within three years once it started making money. So they brought in Minimum Alternate Tax (MAT), which is 18.5 per cent and Dividend Distribution Tax (DDT) which is 15 per cent, and even people who had brought in the money were required to pay that tax. So we need to tell people and investors that whatever happens, ensuring that SEZs are tax free will be maintained.
 
Q. What are the tax issues that the housing sector faces?
 
A. There is a service tax introduced for homes. That is if the house is under construction and you buy it there is a service tax. But if it has an occupation certificate, there is no service tax. So if the building is under construction you are liable for service tax. So you have to pay that additional tax. You already have enough taxes on homes, so this additional taxation needs to be scrapped. If ten years back, the tax on an affordable house was 15 or 16 per cent, today the tax is 32 per cent. There are components of housing - stamp duty, registration charges, service taxes, VAT, component in cement, local body tax. The total tax that is collected is such that, if you buy a house for Rs 3600, Rs 1,200 is actually component of tax. So we need to rationalize that.
 
Q. What are the other issues, besides homes, that need to be taken up on a priority basis?
 
A. Urban infrastructure needs to be increased and Floor Space Index (FSI) needs to grow. Because the land value has gone up, ready-reckoner rates have gone up. Land regulation and acquisition bill has brought the price of land even higher. So how do we reduce it? As Hyderabad has shown it is to remove FSI restraint subject to for example parking, and road space. So subject to some criteria you can get FSI. But right now what we are doing is that we are giving FSI in bits in pieces. Like in Mumbai, we give it for slums, we give it for redevelopment, we give it for the

Mumbai Metropolitan Region Development Authority (MMRDA); and then we give it for Dharavi, SEEPZ. FSI has been increased or given depending on various things from time to time. So the benefit of higher FSI doesn't go to the end user. We need across the board FSI through the country.

But, you can't put FSI without infrastructure. So you need to put some charge on FSI, and that charge is going to be used for infrastructure. Like for example water supply, electricity, road, sanitation, police, fire brigade etc. This will increase GDP by 2.5 per cent at least and unemployment will vanish. Construction and real estate and urban infrastructure are things that can actually create employment.  Even illiterate people can be employed in these sectors. That's an important step.
 
Q. Approval processes are long and arduous, what should be the priority there?
 
A. Today, getting approvals for buildings is a long and arduous process. There are environmental issues, there are local issues, and there are municipal issues. Why should that be? For fire you don't go to government of India. You go to the municipal corporation or whichever authority is there. Every building can't go to a separate committee. There are just too many doors, windows and drawers that require to be opened for approvals. The attitudinal positions of the agencies who would give various permissions have to change.
 
Q. Real estate funding, what is the way forward?

A. We need to create infrastructure for townships. This can be done through Real Estate Investment Trusts (REIT). These are already widely deployed in countries abroad; we just have to copy and paste, with a few modifications such as a 'pass-through'. There are regulations required so that mutual funds can invest, and there is the issue of stamp duty reduction.

If most of this is taken care of, Mumbai can be slum free within 10 to 12 years is what I feel.