Pune: Real estate businesses are looking forward to the forthcoming Union Budget 2012 in the expectation that it will contain some pragmatic provisions that will lower effective price barriers for home-seekers. Real estate developers say the city continues to face problems including high lending rates and construction costs, insufficient infrastructure and lack of affordable housing. Broader incentives for development of affordable housing are needed, to encourage more developers to become active in this important sector and increase the supply of budget homes in the city, the developers said. Anil Pharande, vice-president of Credai (Confederation of Real Estate Developers Associations of India) Pune Metro said that on a macro level, a higher allocation of infrastructure funds for housing can be a favourable approach. “The government can set clear guidelines on timely commencement and completion of projects and link disbursement of these funds with adherence to these guidelines,” he said. Pharande said removal of the 10 per cent service tax on residential real estate construction, which increases the cost of new homes by as much as 3 per cent, is critical for a cost-sensitive market like Pune, which has a sizeable lower mid-income segment. The 1 per cent interest rate subsidy on home loans can also work as a good measure to bring affordability, Pharande said, adding that the present eligibility limit of loan amount of Rs 20 lakh should be raised to Rs 30 lakh. Such a step will help people think about buying apartments of decent sizes, Pharande argued. Reducing taxes such as excise, VAT and stamp duty on real estate will also make home purchase attractive, he added. Also important would be reducing tax burden on rental income, to put a downward pressure on rents which are currently very high, Pharande said. He also said the Reseerve Bank’s restrictions on project finance available to developers is adding to housing cost as developers have to borrow from expensive private sources. According to Rohit Gera, managing director of Gera Development, the data about Pune’s residential real estate sector indicates that there is no scope for any reduction in prices. “The real question is the customers' ability to afford the increased prices. The fact that homes are needed is not the question – the real question is whether the aspirations of home-buyers can be met on the basis of affordability,” Gera said. Given the direction of inflation, indications from the RBI that interest rates will soften, the current cost structure for developers and most importantly, the overall stock position and price movement in 2011, Pune will see a price rise of 15 to 18 per cent during 2012, Gera said. Sanjay Bajaj, managing director for Pune at the real estate advisory firm Jones Lang LaSalle India, said Pune’s property market has been displaying remarkably resilient investment fundamentals. Due to the steady demand, the expected rate reduction in residential real estate has not materialized; in fact, there have been selective increases in many well-located and configured projects by branded developers. Echoing Pharande, Bajaj said the 1 per cent interest rate subsidy which was provided for loans on affordable housing last year should be expanded to include a wider price band of budget housing. “We also suggest that more funds be allocated to infrastructure formation, which would help unlock the inherent value of the property markets in Pune's peripheral areas,” he said. “The highest demand for Pune residential real estate comes from its significantly large corpus of low-to-mid income buyers. As such, this market is extremely sensitized to price and interest rate fluctuations that would not have as much of an impact in larger metros,” Bajaj said.
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