Joint Development Capital Gains Tax now to be paid on completion, will encourage landowners to explore more joint development deals

03 Feb 2017 Editorial Team

- Irfan Razack, Chairman & Managing Director, Prestige Group, and Chairman-CREDAI (National)

Irfan Razack, Chairman & Managing Director, Prestige Group, and Chairman-CREDAI (National), on the Union Budget 2017-18:
In my opinion, the Budget has been outstanding. All sectors have been covered, especially the rural sector and the agricultural economy. This is a government that translates their words into action, and that to me is truly the most admirable aspect of this Budget.

Having said that, there has always been a focus on housing and infrastructure, so it did not come as a surprise to see such a large allotment made to the infrastructure segment. It is obvious that spends on infrastructure will in turn gear up and kick-start the economy all over again. If more and more roads are built, it leads to better economy. That in turn helps the individual growth of people.

Thoughts on affordable housing being given infrastructure status
I’m glad that the government understands the need to support affordable housing. Granting infrastructure status to affordable housing will give the developer operating in this segment, access to more funds from banks. Real estate funding and affordable housing are two separate entities. If affordable housing comes under the infrastructure status, a lot more funds will become available for this sector. Additionally, the cost of finance will be much lower, which will help us build a better product at a reasonable price.

Thoughts on the change in built up area to carpet area for affordable housing
Last year, the real estate community celebrated the Finance Minister’s announcement of ‘30 sq m and 60 sq m’. We interpreted it in our own way, assuming that he was talking about the carpet area. However, it ultimately turned out that he was referring to the built area. This is a big gamechanger because 30/60 sq m carpet is very different from 30/60 squ m built. This changes the definition of affordable housing. This will give a potential homebuyer the opportunity to live in a larger home, rather than a small place. I believe that this will bring about a sea change in the development of affordable housing, especially with this segment of housing now getting infrastructure status as well. Both these developments will help generate more and more affordable homes, and this in turn will help people own homes at a reasonable and fair cost.

Holding period for capital gains has been reduced from three years to two years
This is a big win. Since the government is looking to eliminate black money completely from real estate, this will go a long way in encouraging land transactions with 100 per cent cheque payments. Moreover, they have increased the base from 1985 to 2001, so ultimately the effective tax a person will pay on long-term capital gain, which is now two years, is probably 10 per cent. People will not regret paying that percentage while selling their property for the full value. Declaring the full value will help the cause for everybody – when we speak about long term gain, we are not just referring to land, it also includes built area, apartments, office spaces – this is bound to be a huge gamechanger.

Additionally, the Joint Development Capital Gains Tax now only has to be paid on completion. This will encourage landowners to explore more joint development deals. There is also proposed tax relief for builders on unsold inventory.

Thoughts on the Extension of construction period from three to five years being announced
The Budget has defined the limits for affordable housing of 30 and 60 sq m houses. Outside the 20 km radius for metros, one can make a 60 sq m house, whereas within the city the size of the house has to be smaller. The construction time is also more practical and much more reasonable. This is to get Section 80-IA exemption and encourage more developers to get into the construction of affordable houses. In keeping with their vision of ‘Housing For All’ by 2022, the government at this point requires the construction of an enormous quantity of affordable homes. This in turn will also eradicate unregulated growth of slums and give people an opportunity to live in good sanitary living conditions, which is another focus area of the government. Everything is in alignment and I expect the Budget to work out well for all citizens.

- Irfan Razack, Chairman & Managing Director, Prestige Group, and Chairman-CREDAI (National) Irfan Razack, Chairman & Managing Director, Prestige Group, and Chairman-CREDAI (National), on the Union Budget 2017-18: In my opinion, the Budget has been outstanding. All sectors have been covered, especially the rural sector and the agricultural economy. This is a government that translates their words into action, and that to me is truly the most admirable aspect of this Budget. Having said that, there has always been a focus on housing and infrastructure, so it did not come as a surprise to see such a large allotment made to the infrastructure segment. It is obvious that spends on infrastructure will in turn gear up and kick-start the economy all over again. If more and more roads are built, it leads to better economy. That in turn helps the individual growth of people. Thoughts on affordable housing being given infrastructure status I’m glad that the government understands the need to support affordable housing. Granting infrastructure status to affordable housing will give the developer operating in this segment, access to more funds from banks. Real estate funding and affordable housing are two separate entities. If affordable housing comes under the infrastructure status, a lot more funds will become available for this sector. Additionally, the cost of finance will be much lower, which will help us build a better product at a reasonable price. Thoughts on the change in built up area to carpet area for affordable housing Last year, the real estate community celebrated the Finance Minister’s announcement of ‘30 sq m and 60 sq m’. We interpreted it in our own way, assuming that he was talking about the carpet area. However, it ultimately turned out that he was referring to the built area. This is a big gamechanger because 30/60 sq m carpet is very different from 30/60 squ m built. This changes the definition of affordable housing. This will give a potential homebuyer the opportunity to live in a larger home, rather than a small place. I believe that this will bring about a sea change in the development of affordable housing, especially with this segment of housing now getting infrastructure status as well. Both these developments will help generate more and more affordable homes, and this in turn will help people own homes at a reasonable and fair cost. Holding period for capital gains has been reduced from three years to two years This is a big win. Since the government is looking to eliminate black money completely from real estate, this will go a long way in encouraging land transactions with 100 per cent cheque payments. Moreover, they have increased the base from 1985 to 2001, so ultimately the effective tax a person will pay on long-term capital gain, which is now two years, is probably 10 per cent. People will not regret paying that percentage while selling their property for the full value. Declaring the full value will help the cause for everybody – when we speak about long term gain, we are not just referring to land, it also includes built area, apartments, office spaces – this is bound to be a huge gamechanger. Additionally, the Joint Development Capital Gains Tax now only has to be paid on completion. This will encourage landowners to explore more joint development deals. There is also proposed tax relief for builders on unsold inventory. Thoughts on the Extension of construction period from three to five years being announced The Budget has defined the limits for affordable housing of 30 and 60 sq m houses. Outside the 20 km radius for metros, one can make a 60 sq m house, whereas within the city the size of the house has to be smaller. The construction time is also more practical and much more reasonable. This is to get Section 80-IA exemption and encourage more developers to get into the construction of affordable houses. In keeping with their vision of ‘Housing For All’ by 2022, the government at this point requires the construction of an enormous quantity of affordable homes. This in turn will also eradicate unregulated growth of slums and give people an opportunity to live in good sanitary living conditions, which is another focus area of the government. Everything is in alignment and I expect the Budget to work out well for all citizens.