The real estate sector, across segments, has been facing challenges for quite some time now and the road ahead still looks choppy.
Prior to every budget, each industry chalks out a wish list of some realistic, few optimistic and a handful of unrealistic expectations from the finance ministry. The government is now due to present the Interim Budget 2019 in Parliament on February 1, 2019. The real estate sector, across segments, has been facing challenges for quite some time now and the road ahead still looks choppy. The cash crunch in the sector owing to reduced sales and liquidity has been a key concern area. All references are now being pegged against the 1st budget of the Modi government which was hailed as the beginning of “achche din”. It gave a bonanza to tax payers by increasing the basic exemption limit as well as enhancing the deduction limits under Section 80C. However, subsequent budgets have not been so generous and were a mixed bag of positives, negatives as well as non-impactful sops for real estate. While some budgets offered a few deductions to the taxpayers, others have taken away some of the tax benefits or even levied additional taxes.
Given that the budget around the corner is an interim one, there will surely be an electoral flavour to this budget and should provide benefits for both the common man as well as the industry. The Interim Budget includes a report card on the income earned and expenses made by the government during the last year and the expenses that are likely to happen in the next few months before a new government takes charge.
From a common man’s perspective, sops that offer any form of tax relief and increase the overall in-hand income are always at the top of the wish list prior to any budget. Reduction in income tax slabs or a further increase in the deduction limit under Section 80C from the current Rs 150,000 a year would be a sure shot crowd-pleaser. Reduction in the overall tax outgo also enhances the ability of the salaried class to make investments in housing, thereby indirectly impacting the industry at large, as well. Expansion of the income tax deductions to incentivize first-time home buyers can directly support housing demand growth. For example, deduction for interest paid on loans taken for self-occupied house purchase has currently been capped at 200,000 per annum under Section 24 and, if increased further, can support purchase of self-use property.
One of the key points bothering the real estate industry has been the liquidity crunch owing to reduced funding to developers from NBFCs. Government help towards addressing this problem should bump-up the reduced construction activity owing to lack of funds. Reduction of GST on sale of under construction houses is on the expectation list of both the developers as well as home buyers since it could help boost housing sales. Affordable housing has been given a huge focus during the entire term of the government and is expected to be expanded further during this budget as well. Additional income tax deductions for buyers of units falling under the definition of affordable housing can provide targeted support to this segment where affordability is the main constraint on demand.
Apart from housing, infrastructure has been given significant attention. Smart cities has been a flagship project of the government, aimed at improving the quality of living in urban areas, making them more sustainable. Effective implementation of these plans through adequate budgetary allocation, selection of the right agencies to execute the projects and regular monitoring of timely progress will be a key expectation from the government. Focus on completion of infrastructure projects – be it roads, highways, smart cities, all of it shall overall benefit the industry, with job creation enhancing the purchasing power, improved connectivity directly impacting project sales as well as opening up new areas for development.
All in all, the upcoming budget is expected to be a positive one. Rather than focusing on specific industries, the aim would be to have something for everyone at large to be able to garner a larger voter base.
(By Divya Seth Maggu, Associate Director-Valuation (Mumbai), Colliers International India)