'Create level playing field for housing finance'

Housing Development Finance Corporation (HDFC) is synonymous with housing finance in India. With the Union Budget a few days away, HDFC managing director Keki Mistry spoke to Aditya Chatterjee on the housing finance behemoth's suggestions to the Finance Ministry. Excerpts from the interview: The current income-tax provisions do not allow individuals to claim depreciation benefits on their property. Do you think the government should make a policy change in this regard? Definitely yes. The current income-tax provisions only encourage businessmen to buy or construct residential houses for their employees -- the rate of depreciation being 40 per cent for housing units up to 80 sq. meters, acquired on or after April 1999 but before April 1, 2002. It's unfortunate that such benefits of writing off the cost of the house are only provided to businessmen, and individuals getting no such benefit. HDFC is aware that certain individuals, in order to overcome this problem, resort to creating a legal structure in the form of a private limited company and purchase the property in the name of the company. The idea is to claim both depreciation as well as a set-off in respect of the interest expense. HDFC feels that the government should bring in a level-playing field among tax payers. A proposal could be considered where the benefit of writing off the cost of a house is also given to individuals with the area of the dwelling unit being increased to 125 sq. meters. Further, the time limit of completion before April 1, 2002 should be extended for a further period of 3 years. This, I'm sure, will provide a substantial fillip to the housing sector. Housing finance companies like HDFC seem to hold a grudge for not being conferred an infrastructure company status. Your comments please... (Laughs) Well, let me put it this way. We feel bonds/deposits with housing finance companies (HFC) should qualify as eligible investments under Section 54EC (Capital Gains) since housing also qualifies as being a part of the infrastructure sector under section 80I(B). Further, housing loans of HFCs should also qualify as lending for infrastructure purposes. We also urge the Finance Minister to consider income-tax exemption of long-term capital gains - arising from the transfer of residential house property - if the net sale consideration is invested in bonds/deposits of HFCs and that too subject to a lock-in period of 3-5 years. The issue pertains to cheap finances. Though the definition of infrastructure facility under Section 10 (23G) was widened by the Finance Act 1998 to include housing projects, an inconsistency between the provisions of Section 10 (23G) and Section 80 IB (10) persists. This is why housing projects are unable to avail of the cheaper funding as contemplated under Section 10 (23G). The government should remove the discrepancy and introduce an amendment to Section 80 IB where the stipulation of the maximum construction period is removed. HDFC also feels that fiscal benefits associated with infrastructure financing should be extended to the housing finance sector. Let me explain, why I'm saying this. In order to make housing loans affordable to the middle-class, HFCs like HDFC provide long-term housing loans of 15 to 20 years tenor. For this, we source public deposits as our main source of funds with tenure of one to seven years. Thus, HFCs provide long-term finance at the risk of a serious asset-liability mismatch. If the benefits associated with infrastructure financing is also provided for housing finance, HFCs can raise cheaper long-term finance and offer still affordable long-term housing loans to individuals and also avoid a potential asset-liability mismatch. Please continue... In today's world, having a house is a basic necessity. But the spiralling price of residential houses - especially between 1990 and 1994 - together with the relative lack of availability of developed land, has put housing out of reach of the common man. Hence, it has become all the more imperative for most prospective home-buyers to resort to borrowings from specialised institutions. However, the individual is immediately burdened with a commitment to repay the loan together with interest over a large number of years. I feel this is an unreasonable load on the salaried middle-class. It's high time that housing loans are differentiated from industrial loans. Since no stream of cash flows is generated out of the asset purchased, the interest cost on a housing loan has to be serviced out of the other income of the individual. If the housing finance sector is granted the same fiscal concessions as are available for infrastructure financing, I'm sure the interest burden on individuals will come down. HFCs meeting certain eligibility criteria could also be permitted to raise funds on a tax-free basis for onward lending for housing. All this would enable the HFC to reduce the interest rate on housing loans.

'Create level playing field for housing finance'

Housing Development Finance Corporation is synonymous with housing finance in India. With the Union Budget a few days away, HDFC managing director Keki Mistry spoke to Aditya Chatterjee on the housing finance behemoth's suggestions to the Finance ...

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