Tax And Regulatory Environment

Housing is a basic necessity of life, next only to food and clothing in importance. Apart from shelter, home ownership also serves to fulfill many other fundamental objectives viz. raising the quality of family life in terms of health, education and sanitation. Home also serves as an asset that can be collateralized in times of need generating a sense of physical and emotional satisfaction and achievement. At the macro level, housing generates considerable employment and dispersed economic activity. In India taxes and regulatory parameters are not very much favorable for the real estate industry to grow at the pace it should. Investment in housing for rental purpose is not encouraged.

In Ireland - Interest on borrowings for the purchase, improvement or repair of any rented residential property can be offset against rental income and tax relief can be claimed on capital expenditure on refurbishment of rented residential accommodation after April 2001. The stamp duty for letting houses has been abolished. Such measures in India are very badly required.

China has introduced a series of tax exemptions for companies responsible for building and managing public rental-housing projects, on state. Low-income rental housing is led by government, using rent subsidies and direct providing low-rent housing. Rental housing subsidies mean that the government will provide different rent subsidies to eligible family based on rent standards. Fund mobilisation for rental housing done through following measured:

Some of the incentives in CHINA are:

The developers negotiate with the authority about land price in case they are building rental housing.

The government does not levy any tax on urban land use for land developed for public rental housing. It does not levy stamp duty for the construction of such projects, and waives both taxes and stamp duties in cases where a property-management firm buys apartments for use as public rental housing.

Exemptions are also offered on deed tax and property tax.

There are some beneficial rules for public rental housing, such as 50%-70% discounts for land transfer fee, and 1.5 to 2 times of residential floor area ratio compared with commercial housing.

What we need is:

Renting of homes be treated as a “Commercial” activity which increases property tax for individuals and service taxes for institutional rental housing operators (i.e. Hostels/PGs/Dormitories etc.) wherein electricity and utility rates are calculated at par with commercial properties, hence reducing the rental yield. Higher outflow due to commercial treatment deters the growth of rental housing.

Further, the rent control law indirectly discriminates against the small owners/ underprivileged residents of urban India. Housing loan payments can be deducted from Income Tax, but not rent paid specially by the poor and vulnerable section of the society. In most cities rental yields have not kept pace with the increase in prices of real estate. Rental yields were at levels of 6% or so in Mumbai during 2006, around 3.5% in 2009 and 1.5% in 2011.

Provide incentives (fiscal and non-fiscal) to the owners i.e. tax exemptions both direct and indirect by Central, State and ULBs, maintenance allowance etc.

Facilitate income tax concessions for institutional owners that create mass rental housing especially catering to the affordable SRH sector.

Advice Urban Local Bodies (ULBs) and other entities to treat SRH properties like hostels (including private hostels) as residential properties for the purpose of calculating property tax, and towards other chares like electricity/water charges etc.

Exempt property tax for predefined period (say for 5 to 10 years) for Social Rental Housing properties.

Treat rental housing stocks at par with owner occupied premises in terms of property tax treatment and calculating other utility charges (water/electricity etc).

Permit incentives or tax exemptions for improvement of residential properties.