Budget 2020 Expectations: Incentives needed to address liquidity challenges in real estate and give a boost to rental housing

Updated: January 24, 2020 1:14:21 PM

Budget 2020 Expectations for Real Estate: Given the impetus and stimulus that the government in recent times has extended to the realty sector, it is heartening to note that despite a formal industry status not being accorded, the sector is still being treated as an industry.

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Budget 2020 Expectations for Real Estate: Ahead of the Union Budget 2020-21, we expect the government’s continued focus on infrastructure development and nation building. Given the fact that the economy has settled down post multiple measures and layers of reforms, there are several expectations from the Union Budget to fuel consumption, increase demand in the market and aid the economy on its way to achieve higher growth rates, yet again.

While the budget is expected to push areas of economic growth, a few macro-economic reforms are on the anvil. These are expected with respect to the rationalisation of direct and indirect tax rates; consolidation of GST rate slabs; and large institutional reforms, specifically within the education sector.

Given the impetus and stimulus that the government in recent times has extended to the realty sector, it is heartening to note that despite a formal industry status (which has long been demanded) not being accorded, the sector is still being treated as an industry. This is indicative of the government seeing the sector as an engine of economic growth and employment generation.

Here is what to expect from the Union Budget 2020-21:

FINANCIAL MEASURES

1. To redress the core crisis of liquidity in the sector, the government will need to take a stable policy direction for taxation and reforms in land and labour.

2. We hope to see an attractive proposition for money lending and cheaper Financial Institution (FI) borrowing.

3. Lower / clubbing of GST rates are expected in certain cases, where basic raw materials like steel, cement etc. are unburdened.

# Include ITC benefit in GST for under-construction homes to reduce the burden on end buyer, giving an impetus to under construction projects in residential.

4. Reduction in import duty on steel, coal, sand etc.

5. The government should look at the possibility of creating a securitization market to free up capital and measures to boost participation in the global bond’s market.

Watch: Budget 2020: Your income tax burden may come down – Top 5 Expectations

REAL ESTATE MEASURES

1. The Real Estate Regulatory and Development Authority (RERA) which is moving towards the creation of common open platform (COP) needs to be strengthened.

2. National Infrastructure Pipeline (NIP) is expected to create a ripple effect for boosting demand in real estate sector. This however requires the government to create transparency around land ownership and pooling.

3. Rental Housing to receive a boost.

# The draft Model Tenancy Act, 2019 that has been devised to boost supply in the rental housing segment makes renting more lucrative for both landlords and tenants
# It bridges the gaps that currently exists in policies regulating the rental housing segment
# It is advisable that poor/homeless/migrants should be provided with dwellings that have a rental rate of Rs 2,000 to Rs 2,500 per month
# Student population which is still not independent should have a rental outlay of Rs 5,000 to Rs 6,000 per month
# White-collar employees (LIG/MIG)should have a rental outlay of Rs 20,000 to Rs 25,000 per month
# The above should lay the ground, for creating a critical mass for Residential REITS

4. Extend the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act, in order to boost housing demand.

5. Further impetus is required to attract private sector investors in affordable housing. Although the segment has been given infrastructure status, it is proving difficult for developers to get capital from Banks and NBFCs at lower interest rates, making these projects not so lucrative.

6. The recently introduced lower 15% tax rate for companies looking to set up new factories will only be effective if land acquisition is made easy, through land reforms. This will also help foreign investors to enter the sector, making the approval process of real estate projects smoother.

REVIVING HOUSING FINANCE

1. The government’s move to aid the market by setting up Alternative Fund Investment of Rs 25K crore to revive the realty sector must be implemented at the earliest. It is critical to provide relief to developers and improve buyer sentiment, considering the current situation.

2. The ongoing liquidity crisis enveloping all sectors can be handled by easing liquidity in the market especially for developers, through increase in capital flow and stable supply of fully constructed homes. This will also deter unreasonable pricing in the sector.

3. As alternative instruments of finance to revive the sector, the government should consider Housing Provident Funds; along with Contractual Savings Scheme for Housing and Mortgage Securities in emerging markets.

4. Contractual Savings Schemes for Housing (CHS) are extremely popular with policymakers in developed realty markets. Post demonetization, and ‘JAN DHAN YOJANA’ – there is a significant surge, not only in the formal economy, but there also being a greater availability of affordable housing in semi-urban and rural areas, which are in closer vicinity to mid-to-large cities. These are the right factors for CSS being successful in India as well.

5. Post cleaning of Non-Performing Assets (NPA), increased regulatory compliance, macroeconomic environment – India seems to have all the right factors to develop a Mortgage Securities Market with more complex instruments, in order to increase its share in housing finance.

6. Creation of Housing Provident Funds (HPFs). These work on accrued savings, therefore not only do they provide a push to the general economy, but aide in creating a long-term sustainable financing model.

7. Interest rate cut on home loans is expected, where the benefit of the reduced rates need to be passed on to end-consumers

INFRASTRUCTURE MEASURES

1. The budget should focus on quicker on-ground implementation of infrastructure development. The government’s commitment to infrastructure is undeniable. However, the proposal to expend Rs 100 lakh crore on it over the next five years needs to be implemented quickly, to derive optimal results for aiding the sector.

2. Further impetus and funds are expected to be deployed and utilised towards the Smart City’s Mission.

3. Further Metro Rail projects in Tier II and Tier III cities are expected to be approved and sanctioned.

4. To create safe investment options in Infrastructure, PPP projects under Hybrid Annuity Model should be encouraged.

5. Greater emphasis should be accorded to ‘Sagarmala’ (River-Linking) projects by nationwide water levelling of flood waters, which results in huge damages to human life and other resources.

6. Warehousing and Industrial Warehousing to be promoted extensively (in keeping with the focus on Bharatmala, Sagarmala and Fright Corridors) to help ease the wide fluctuations in seasonal food prices

(By Nimish Gupta, MD-South Asia, RICS)

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