The housing sector, the largest revenue contributor by far for real estate developers in India, has been hit by slumping sales and falling unit prices as the country's growth began to slow amidst the credit crunch.

"The distress is more locally generated and more to do with property prices," Raja Kaushal, executive director and chief operating officer of BNP Paribas Real Estate India.

Duplicate service taxes need to be brought down for developers, while transaction costs need to come down for home buyers, he said.

Real estate companies such as India's largest listed real estate developer DLF Ltd (DLF.BO: Quote, Profile, Research), Tata Housing, Puravankara Projects (PPRO.BO: Quote, Profile, Research) and Unitech (UNTE.BO: Quote, Profile, Research) have rushed to launch middle or low-income housing projects to drive cash flows amidst the liquidity crunch.

The government needs to initiate public-private partnership in low income housing by providing land banks, available with the government, to the developers, Maharashtra Chamber of Housing Industry said in a note.

It also wants the bracket for priority lending for houses increased to up to 3 million rupees from 2 million rupees.

"We don't need to generate demand, it just needs to come at the right prices," Kaushal said.

LENDING

Mortgage lenders want an increase in the bracket for tax concessions on housing loans to 250,000 rupees. Tax payers now get a relief of up to 150,000 rupees for interest payments.

Analysts say that this will help spur demand and benefit buyers as well as help boost sales for the industry.

A separate tax relief for capital repayment should be provided for, R.R. Nair, chief executive, LIC Housing Finance (LICH.BO: Quote, Profile, Research), said.

Besides the relief to consumers, the government needs to increase the tax exemption limit to mortgage lenders.

Kapil Wadhawan, managing director of Dewan Housing Finance (DWNH.BO: Quote, Profile, Research), said the exemption limit for a tax free reserve should be raised to 40 percent of the pre tax profits or revenue. The exemption was slashed to 20 percent 2 years ago.

"I think one way (to) actually pass on the benefits to the customers is to reduce the base of interest instead of tinkering too much with individual tax slabs," he said.

However, demands on exemptions may not be answered, analysts point out. "Their margins are fairly high, they're higher than software, so why (should they) get benefits," Shailesh Kanani an analyst at Angel Broking.

The companies also want tax relief for five year deposits like that given to banks, Wadhawan said, adding this would help raise cheap long term funds.

Cheaper funds need to reach National Housing Bank, the state-run funding agency for housing firms, to lend to housing finance companies at lower rates, he said.