RBI rate cut not enough to boost real estate industry, feels Rohit Gera

In the backdrop of the lag between promises of ''ache din'' and ground realities of the prevailing negative sentiment, the government must take definitive steps to deliver on its promise of "ache din".

''Today's citizen lives in a world of instant gratification. People do not have the patience to wait for the structural reforms to trickle down to them (which it eventually will). The finance minister, therefore, needs to take steps to now provide citizens with clear benefits,'' says Rohit Gera, managing director, Gera Developments.

According to Gera, while the UPA's re-election had led to an instant impact to the stock and real estate markets in 2009, in spite of the continuing negative sentiment based on the global meltdown, this time, however, the real estate segment has not seen the turn in customer sentiment and purchase, even though the mandate has been far more decisive. ''I believe this is because people are waiting to actually see the benefits to their pockets of the "ache din" promise by the government.''

The 25 bps reduction in policy rates by the Reserve Bank of India (RBI) has not helped instill confidence in the real estate sector and the cut, the felt, is inadequate to kick up demand.

''We need out-of-the-box bold decisive moves - an example of this could be to offer single home buyers an extra 100 per cent deduction of the interest they pay for their homes for a period of 5 years. The effective interest rate for customers works out to 7 per cent and the revenue loss for the exchequer on account of this additional deduction will be more than offset by the revenue gain on account of all other taxes on the home,'' according to Seri Infra's Hemant Kanoria.

Our expectations are therefore very high - the government must take clear and unequivocal steps that affect the pockets of the average citizens, says Gera.

Budget wish list:

  • Increase deductions towards rental income to incentivise and boost rental housing in India;
  • Disallow long term gains on sale of property if TDS is not done at the time of purchase. Increase compliance;
  • Reintroduce the NDAs provision of 80-IB(10) - tax incentive to develop housing projects with stringent provisions. This will result in more supply and lower prices;
  • Modify registration Act – deny registration of property if TDS certificate and completion certificate are not produced;
  • Permit 5 year 200 per cent interest deduction for single home buyers. Net 7 per cent interest boost for the industry and revenue; and
  • Introduce special residential zones like SEZs to boost low cost home supply. Use existing SEZ processes.

Policy reforms that improve approval time lines, single window clearance, elimination of discretionary powers in the hands of the officials (leading to corruption) will help improve delivery and lower holding costs for the industry, he adds.