Budget 2020: NBFC crisis necessitates solving liquidity issue to boost buyers, developers confidence

January 30, 2020 3:00 PM

Budget 2020 India: Given the policy reforms undertaken by the government over the last few years, it is expected that the upcoming budget would incorporate changes that would give impetus to the sector.

Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21Budget 2020-21: The NBFC crisis necessitates the challenge of liquidity to be addressed. (Image: Reuters)
  • By Saurabh Garg

Union Budget 2020 India: Last few years have been a challenging period for Indian Real Estate industry. The troika of demonetization, GST, and RERA had taken a good toll on the health of the sector which is still recovering piecemeal. A couple of other factors further aggravated the situation. The liquidity crisis in non-banking finance companies (NBFCs), which was a major source of funding for the real estate sector, resulted in a huge cash crunch for developers. Add to that the ban on subvention schemes, under which developers paid interest on home loans on behalf of consumers until possession, drove away the demand further.

The residential real estate has remained subdued with flat prices and dreary sales for a while now. Given the policy reforms undertaken by the government over the last few years, it is expected that the upcoming budget would incorporate changes that would give impetus to the sector. There is a slew of measures which are expected from budget 2020 that could provide the necessary stimulus to the sector. Let’s hope that this year would be a year of consolidation and growth for the real estate sector for.

Need for Immediate Action

  • The NBFC crisis necessitates the challenge of liquidity to be addressed. Liquidity would boost market sentiment. If dealt on priority it has the potential to bring back the confidence of buyers and developers.
  • RBI has permitted banks to restructure/rollover loans at their discretion. Apparently this move does not benefit the sector. The restructuring or rolling over triggers provisions related to NPA. Due to market slowdown and poor performance of several NBFCs, developers are facing acute liquidity shortage. Provision to restructure/rollover would give a significant breather to the developers.
  • Another important measure that can help revive the sector is an improvement in Input Tax Credit. Post lowering GST rates, the government has withdrawn the Input Tax Credit. For housing to be made more lucrative to the buyer, it is pertinent that Input Tax Credit be revised.
  • On top of that, reduction in personal taxation would be a very welcome step. It would speed up decision making for those who are on the verge of buying as right now Indian real estate is a buyers’ market and they have more bargaining power.
  • Reduction in stamp duty to at least an extent of 50 per cent can also help raise demand. Also, stamp duty should be included in GST.
  • For the government to achieve its objective of ‘Housing for all by 2022’ under 80C, the limit for principal repayment should be increased from the current Rs 1.5 lakh, especially for affordable housing or such principal repayments should be a separate limit outside Sec 80C.
  • To boost rental housing and with the vision of housing for all by 2022, interest paid on 2nd and 3rd home should also be allowed as a deduction.
  • Model tenancy law should be implemented as it is a promising platform for tenants.

Watch Video: What is Union Budget of India?

Scope for Further Improvement

  • It would be great if the 2020 budget gives real estate sector an industry status as it’s been pending for a while now. The step would help with finances at a lower cost.
  • Single window clearance can aid in quick approvals and execution of the project.
  • Affordable housing will be a major growth driver in real estate. However, multiple concerns such as unavailability of urban land at reasonable prices, rising costs of construction, high taxes, regulatory issues and unfavourable development norms hinder a lot of Grade A developers from entering into this segment.
  • Salaried class get House Rent Allowance (HRA) and can claim a tax deduction. However self-employed people and those who draw lump sum amount can only claim up to Rs 5,000 a month under section 80GG. 2019 budget should remove this irregularity.

(Saurabh Garg is the Co-Founder & CBO at Nobroker.com. Views expressed are the author’s own.)

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