‘Tackling legal hurdles, tax complexities essential for growth of real estate sector’

Lahari Group Chairman G Hari Babu has more than 45 years of experience in the real estate sector. He was the president of APREDA (Andhra Pradesh Real Estate Developers Association) for four years. Subsequently, the organisation underwent a transformation into National Real Estate Development Council (Naredco) AP Chapter, and he continued to serve as its president for an another four years.

During his tenure as the president of Naredco AP, he played a pivotal role in the expansion of, facilitating the establishment of 12 chapters and the enrollment of more than 1,200 members. Recently, he was elected as the Naredco national president. In an exclusive interview with Bizz Buzz, he shared his insights, experiences, challenges and opportunities in the housing and construction industry

How do you feel after becoming the national president of Naredco? What is the first thing you want to do for the real estate sector in the country?

It's a more responsible job, than an honorary post. I have to spend at least 20 per cent of my time on the nation-wide real estate affairs. The first thing I wish to do as the president is of course not just one. I will be requesting the government of India to give some support for the affordable housing sector in the form of interest subvention on home loans up to Rs 12 lakh.

I also urge the Central government to incentivise the construction of affordable homes in India, by extending the scope of the tax holiday provided to affordable housing projects. I recommend bringing back Section 80IBA in the Income Tax Act for the real estate developers to claim full tax deduction on profits earned through the sale of affordable housing projects.

Housing is the minimum basic necessity for any family unit. The above cited incentives from the government will boost the affordable housing sector in the country. The lower income group or the bottom level of the pyramid would benefit from these measures. Their face has to be up to the mark if India wants to become a developed nation by 2047.

Do you think these incentives are enough for providing ‘housing for all’ in the country?

I am not talking about just urban housing. Till date, more than 58 per cent population lives in rural areas and majority of them are residing in small ugliest homes which need to be upgraded. In the villages and towns, a 1BHK house would cost anywhere around Rs 20-25 lakh. If interest subvention is given on home loans up to Rs 12 lakh, people can go for extension of an existing house or buying a new one.

We need to discuss separately about the revival of urban housing. Land is not a problem for affordable housing even in the urban areas. There are many slums that are under the control of the government. Adani Group’s real estate arm is working on the rehabilitation of Dharavi in Mumbai, which is one of Asia's largest slums. Once it is built successfully, it will be replicated in slums across other cities of India.

Are the governments ready to offer incentives to affordable housing projects?

If the affordable housing activity is in full swing, the builder will pay about 18 per cent of GST on the construction cost of the building. So, it is like taking from one hand on the name of taxes and giving from the other hand in the form of interest subvention. In this process, the Central government is not losing anything. The GDP will increase rapidly and the overall economy will grow to the next level.

Few State governments are giving house site patta to the poor people. Instead of that it is much better to deliver homes in a redevelopment project with more amenities like parks, etc. The Maharashtra government has approved the redevelopment project in Mumbai. Once this venture gets completed, more State governments will go for such slum redevelopment projects across the country.

What are the challenges in the real estate sector at present? How do you plan to overcome them?

All the Indian lands are subject to litigation. No land is litigation free in the country, particularly in the cities. This is the reason most of the foreign companies before setting up their industries, they'll ask the government to acquire the land and give them. When the government acquires the land from farmers, it becomes litigation-free. But if the same farmers sell the land to the developers, it is subject to litigation.

The Rajasthan government has recently come up with a title guarantee. Unfortunately, when they started covering only 2-3 districts, it was not completely materialised. Title insurance is fundamentally encompassed under the Real Estate Regulation and Development Act (RERA). Every builder has to submit the title insurance policy to the RERA Chairman, but it is being ignored comfortably everywhere.

Even the RERA Chairmen in all the States know that the title guarantee is not possible. There is no agency in the country to certify a piece of land as litigation free. Also, no insurance firm in the country will come forward to provide title insurance. This is a bigger concern for both the builders as well as property buyers. So, we want to take this aspect to the notice of the Central and State governments.

Another major challenge for the real estate sector is the GST. Initially, it started with input credit. Later, it was removed because of unknown reasons. All other businesses are running on an input credit basis. The real estate is the only sector with no input credit and the customer has to pay 5 per cent as GST and in addition to that 7.5 per cent as registration charges to the government.

At the time of land acquisition, the realtor paying the stamp duty on the purchase cost, 5 per cent conversion of the agricultural land and high-rise building fee of Rs 4 crore per acre will not be considered for the input credit. Practically, the government is getting 30-40 per cent of the building cost in various forms of taxes and fees from both the buyers and the builders.

The builders are often blamed for looting money from the public, but the biggest beneficiary of the real estate is the government both at the Centre and the States. The developers are working for just 7 per cent profit. On a turnover of Rs 100 crore, they are achieving only Rs 7 crore while the governments get around Rs 30 crore in the form of several taxes.