GST Tweak, Industry Status Top Realty Cos’ Budget Wishlist

Realty sector can be a driving force for creating jobs and GDP growth, says CREDAI. After being through the various structural changes and demand pressures over the past two years, the real estate sector is expecting the upcoming Interim Union Budget for 2019-20 to rationalise the Goods & Services Tax rates for under construction properties, further incentives for affordable housing, and convergence of stamp duties within the GST rates.

Given the sector’s linkages with other industries, contribution to the economy’s growth and support to job creation, most developers continue to reinforce a long pending demand of awarding industry status to the sector. “Boosting farm incomes and adding job opportunities are the twin tests for Union Budget 2019-20. Real estate and construction industry fit into the Budget 2019-20 scheme as the second largest employer after agriculture, and contribute close to 10% of GDP. Alignment of GST and personal income tax so as to boost home ownership is a strategic option that government may well consider exercising,” said CREDAI national president Jaxay Shah.

Despite the regulatory approval being in place for quite some time, REITs, a potent instrument of change in the real estate industry, have been held back. To make real estate investment trusts (REITs) more attractive for investors, experts are suggesting making it more tax-efficient for investors. “REITs have the potential to enhance the supply of commercial real estate — an enabler for the employment ecosystem. For unit holders, the long-term capital gains holding period for REIT units should be brought down from 3 years to 1 year,” said Shishir Baijal, chairman, Knight Frank India.

Given the liquidity pressure created by fears of defaults by realty developers and non-banking finance companies (NBFCs) following the IL&FS default in September 2018, experts are also seeking to re-finance NBFCs by raising their limits. “For the industry at large, one of the most critical steps that this budget can take is to increase the finance limits for NBFCs. NBFCs constituted more than 50% developer finance in 2018 as against 30% in 2011. The government must revive the sector by pumping in more money into NBFCs which lend to developers,” said Anuj Puri, chairman, ANAROCK Property Consultants.

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RBI Cancels Registration of 1,490 NBFCs in 2 Years Kolkata Tops the List

Kolkata tops list with 617 cancellations, Delhi second with 203 Stepping up oversight over credit companies, the Reserve Bank of India has cancelled the registration of 1,490 non-banking financial companies (NBFCs). These included NBFCs that failed to meet prudential norms and those that voluntarily surrendered registration. Kolkata tops the list with 617 cancellations, and New Delhi stands at second spot with 203, followed by Mumbai at 190, according to the data provided by the RBI for parliamentary questions (Lok Sabha).

These cancellations happened owing to non-compliance with mandatory requirements like minimum net-owned funds (NoF) of Rs 20 million, not submitting statutory returns, and companies not being traced at the addresses they gave. In some cases, NBFCS surrendered the certificate of registration, the RBI said. The RBI said NBFCs registered with the regulator were subject to on-site inspection and off-site monitoring through return submission and statutory auditors’ reports. Analysts said finance companies had become crucial in extending support in the last mile to reach customers where banks experience limitations due to structure and staff strength. Finance companies have a nimble set-up, reach and flexibility to reach even remotest locations.

NBFCs are a key link in extending credit and other financial services to micro, small and medium enterprises (MSMEs) and those at the bottom of the pyramid across the country. According to the Financial Stability Report published by the RBI in June 2018, loans and advances of the sector increased 21.2 per cent and investments 13.4 per cent. The aggregate balance sheet size at the end of March was Rs 22.1 trillion. Senior NBFC executives said the quality of risk management and governance by finance companies had a bearing on the financial stability of the system. Defaults by Infrastructure Leasing & Financial Services (IL&FS) and its group entities in the second quarter of the current financial year (FY19) were a major setback to the financial system and hit liquidity for finance companies.

The RBI has stepped up supervision and now looks at liquidity management and loan books for asset quality to spot gaps and risks. The major concerns flagged about finance companies include borrowing short-term for lending to long-term assets, often leading to asset-liability mismatch. Governance and risk management practices need improvement. According to the Financial Stability Report, there was a deceleration in the share capital growth of NBFCs, whereas borrowing grew 19.1 per cent, implying rising leverage. NBFCs have to maintain minimum Tier I and II capital of not less than 15 per cent of aggregate risk-weighted assets. All finance companies are subjected to prudential regulations such as capital adequacy requirements and provisioning norms, along with reporting requirements. In March 2018, there were 11,402 of these companies registered with the RBI. Of those 156 were deposit-accepting (NBFCs-D). There were 249 deemed systemically important non-deposit accepting NBFCs. The number has come down to 10,102 by the end of September 2018, according to the RBI data.


The Business Standard, 24th December 2018

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