Monday, February 25, 2008

Realty seeks tax, input price relief

Real estate companies want taxes to be lowered and prices of construction materials controlled in the forthcoming budget.

“We want tax breaks on infrastructure, which were there until last year,” said Vipin Agarwal, executive director of Omaxe Ltd. “Infrastructure development is essential for the development of the country. We should get some incentives in the form of tax breaks to invest in it.”

Realty firms are also worried about the soaring prices of construction materials in India. “The rocketing prices of steel and cement are affecting construction cost,” said Abhinandan Chatterjee, president and chief financial officer of BPTP Ltd.

“The government should try to rationalise prices of construction materials so that the costs of developed properties remain under control and the benefit is passed on to the buyer,” Chatterjee said.

In last year’s budget, finance minister P. Chidambaram had taken a carrot-and-stick policy vis-à-vis cement. He reduced the excise duty on cement by Rs 50 from Rs 400 per tonne if cement was sold at Rs 190 per 50 kg of bag but raised the duty to Rs 600 per tonne on a higher retail price.

Real estate firms want all incomes from rent to be exempted from income and service taxes.

“Service tax should be abolished as it is an unnecessary burden for us,” said Ashish Gupta of Aerens Goldsouk International Ltd. Developers also want a cut in lending rates in construction and housing finance. “I think interest rates on loans should be lowered substantially to make purchasing properties easier,” said Chatterjee. “The demand is low at the moment because of high interest rates,” he added.

However, interest rates are an outside-the-budget decision to be taken by banks.

Most of the developers expect changes in policies regarding external commercial borrowings (ECB) and foreign direct investment (FDI). “Currently there is a ban on ECB in the realty sector. This should be lifted,” Gupta said. “The minimum covered area under development required to bring in FDI should be reduced,” Agarwal said.

Gupta wants it to come down from 50,000 square metre to 10,000 square metre. “We need a lot of funds for our developments. Restriction of foreign equity acts as a hindrance, more so because international investors are keen to invest in India right now. We should take advantage of this interest to develop our sector,” he said.

The Confederation of Indian Industry, in a pre-budget presentation, has said, “Given the large amounts involved in infrastructure projects and an absence of cash flows during construction, Indian firms need to have access to finance of all kinds.” Developers also want the stamp duty on property sales to be reduced as much as possible. They also want reductions in customs duties on construction equipment and service tax exemptions for construction contracts.

Real estate body Confederation of Real Estate Developers Association of India has said, “One-point taxation should be levied so that the heavy burden of multiplicity of taxes is reduced and automatically, the cost of construction of flats will come down drastically.”

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