Saturday, March 7, 2015

Union Budget & Dream of Affordable Home!







A budget tells us what we can't afford, but it doesn't keep us from buying it…William Feather

William A. Feather was an American publisher and author, after earning a degree in economics; he began working as a reporter for the Cleveland Press. In 1916, he established the William Feather Magazine. In addition to writing for and publishing that magazine, and writing for other magazines, he ran a successful printing business, and wrote several books. The quote indicates his authority on the subject he has earned a degree as well as an author too! While the country is yet to come out from the usual discussions about the financial budget this quote I feel best to start the sharing. Every year we get budget & as usual celebrities reactions cum comments about the same. Every year the faces, names also are same to whom similar questions are asked & even the reactions are also same. Never have I remembered that someone has said excellent budget & it’s going to change the fate of a particular business & analysis of why so! May it be real estate or automobile or white goods, no one are ever happy with the budget. There was a joke on whatsapp which recently is like a face of the society, saying “It’s only the drunkards & manufacturers of alcohol are the people who accept any budget without any complaints, despite the fact each new budget is loaded with added burden of taxes on the product!” Joke it may be yet it speaks about the budget outcome; as no industry is ever happy with what they get in budget, is what common man in me thinks when he read all the usual post budget tamasha!


Agreed no one, even the Gods can make all the people happy at a time, & especially when the people are our beloved Indian lot, yet some where fact remains how can no segment is happy with the budget & why? I always like to read the reactions of the common man rather so called common man about the budget as I wonder how many actually understands the terminology & the figures reveled in the budget. Why can’t it be a simpler & free of terms like surcharge & repo rate etc? Why it can’t straight away speaks about what type of discounts a person will be getting when he will go & buy a particular product? Why the budget is always in code language of an economist which no sane common man can understand even with his common sense? Leave apart a common man, even a common businessman like me also don’t understand what my business has gained or lost due to the new budget, such are the budget presentations. Agreed I don’t expect something like simple new read but then just as a thought white paper like thing can be also prepared along with the main budget document which will put the basics of the budget in a language which common man will understand! Till that happen we all have to depend on media or the so called experts to know what pinch or smile the budget has given us or the best way is waiting till actual effect happens to the prices of the products we buy!

For now put such dreams aside & let’s see what the budget has given to real estate; here real estate means keeping the end user in mind who is a simple home buyer from middle class, is what I mean! Many as usual will say why to give relaxation in taxes or anything to real estate as builders & all related to that business has enough of money, so let’s understand, real estate isn’t some bunch of so called Ray ban goggle & gold chain wearing guys but it’s the end product which we should think of! And with all due respect I as a common man plus builder found nothing at least that’s what my prima fascia understanding is from what I read about the budget. Though it’s too early to comment as many corporate bosses have said its very good & long term planned budget & that’s has been reflected on share market the way it has reacted with high tide. But then does really share market can represent ground situation in any particular market is what I always want to ask. And sadly at least the real estate in Pune the scene is all together reverse than what is being seen in share market. The land rates are still sky rocketing & flats rates whatever they may be there is no taker is the scene which not many will acknowledge but off the record yes! May it be a thousand flats town ship or small single standing building all the developers are bleeding & the biggest joke is even the clients still are blaming the real estate industry for high prices of homes! Everyone is speaking about affordable homes but no one knows where they are?
It’s this subject which hasn’t been touched by the budget is what I feel. The Hon Prime Minister has earlier mentioned about prioritizing housing that too housing for all segments of the society so the expectations were real high from the budget but seems PM has different plans as not a single special policy has been announced which will lead the way to make houses affordable & that too the end buyer if not developers! For e.g. when we want to make any product of a particular industry affordable means a bit cheaper or easily available then the first thing it should get reflect in its taxation mode & second is making easier as well cheaper finance available to buy that product! Both things haven’t been happened on real estate front in the budget at least no one has said that it’s been done in this way. 

Few years back there was income tax scheme by name 80IB which assured no income tax for the projects which have a certain sizes of flats as well the land size should be more that one acre i.e. nearly 44,000sft.  This scheme was abandoned suddenly the way it has started. Again though I am no expert on such matters but by me there were many lacunas in the 80IB & the biggest was no system was in place to assure that whatever benefit the developer has been given by charging no income tax has been passed on to the end buyer of the homes neither any such benefit the other segments related to the real estate got via this scheme! As in real estate it’s a myth & some what extent a truth, that only land lords & the builders earn rest all just run! And this is where the 80 IB scheme lacked most in achieving its success of making the homes affordable! By me that was the last attempt made to homes affordable to all segments of the society as then after no govt came up with any scheme which was aimed to assist real estate & its segments!

I don’t know what is corporate tax but seems it has been reduced & that too by one percent for each coming years, in gross five percent. Well, how many corporate companies are there in real estate? Rather the industry lacks corporates' & most players are local as well partnership firms, so I doubt reduction in corporate tax will do any good for real estate. Then come the famous capital gain tax which hasn’t been touched again, keeping investors away from the market. For those who are not aware of capital gain tax, well land or home must be the only product where this tax is applicable. It means govt decides how much profit you should earn in buying & selling of a real estate property, residential more precise. In no other industry this is applicable as how much money I should make must be left to market & why govt needs a cut from that profit I always wonder? Again the profit which you have earned from selling your flat which should be at least three year old to avail capital gain provision. So this money you have to put in other property or bonds which gets locked for three years at very cheap interest rate! This is something we need to work on if we want more investors to come in real estate. I myself don’t know if this is good for end users as investor seeking only profit may again damaging to target of affordable homes but at the same time every industry needs investors for growing is a fact. So there has to be a tax structure which will balance between end user as well investors, which apparently hasn’t been done.

Another aspect is making cheaper rate finance available to the real estate developers, as even if you are building a five star luxury resort then also you get red carpet treatment from banks & soft loans but no such thing for a builder! Here in first place you don’t get finance to buy land which is major investment in itself & then real estate is a non priority segment means have to avail loans at highest interest rate! There are loans available for a flat holder at mere eleven percent & up to eight percent of deal value but at the same time developer has to pay as high as eighteen percent & more than that to private financers for land, so ultimately making the end product burdened with all the high interest rates! This simple math a non banker like me can understand but not our finance minister!

There wasn’t any policy for construction material’s rates or any special facility for their production. Every year right from cement too steel to sand, all rates are hiked by the manufacturers as govt seems to have no say in it. Also the service tax has gone up means every service of consultants like lawyer, architect & structural designer & many so has become costly. Why they can’t reduce service tax for professionals related to affordable housing but for that govt has to define what is affordable which they haven’t bothered to do!

Our Hon PM speaks highly about use of unconventional source of energy & its use to be promoted in housing but on this front also the budget is silent. Where we lack in eco housing is at R & D; and on this front budget could have made provisions for setting up R & D institutes on the line of National Chemical Laboratory type establishment in form of National Environmental Research Lab! As we need to find our replacement for age old construction techniques involving huge natural resources like sand & khadi, which are creating lots of problem to the environment such as river bed erosion or hill/ mountain cutting. And for that in depth study of alternate materials as well construction practices is a must, which we are not having anywhere in the country expect TERI, to some extent! At the same time if we want to promote solar energy in homes then these products should be subsidized & that effect of energy saving has to be given while calculation use of conventional electric energy. A nationwide common policy has to be made for this which is missing right now. Also procedural delays in obtaining hundreds of NOC’s for building a building has to be streamlined. Every city takes its own time in very basic thing like making development plans; this has to be time bound or else applying financial charges to the civic body by state or central govt. At the same time efficient programming of DP’s should be rewarded by financial prizes to the civic bodies so they will be on their own get such planning things done in time.
For making affordable homes the most important front is infrastructure of any urban development & a separate fund has to be created here as well schemes to attract more investors in this segment. As no home can be affordable if there isn’t any proper transportation, water, power, drainage, education, public health like facilities around the home. And on this front every city & town lacks very much. Even in Pune if we have a holistic look then what we see? The villages which have been merged or to be merged in Pune Corporation have town ships mushrooming all over but without any of above infrastructure. Under the name of affordable housing we are making concrete slums & govt seems to turn blind eye on this front!

People are buying homes despite the poorest infrastructure because they are helpless & in need of a shelter. Millions don’t have their own home is a fact & they adjust with whatever comes in their budget without complaint but is it a good governance? It’s high time the real estate industry should ask themselves about their role rather responsibility is proper word in making a budget of a country where most of the population either lives in slums or in fields. This year is gone for the budget part, but there is next year ahead & if we the people in real estate don’t think & act for our clients then like the famous  “Shaikhchillie’, who cut the branch of tree he was sitting, we all will end up same way. And do mind our fall will be from such a height that our recovery will be impossible!
Sanjay Deshpande

Sanjeevani Dev.

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