Budget 2021 Expectations: Real estate looks for further incentives for growth
Updated: Jan 31, 2021 5:46 PM
Union Budget 2021 India: The budget should lay emphasis on enabling demand growth in the real estate sector.
Budget 2021 has the potential to lay the roadmap for the economic recovery of the nation in a post-COVID world.
Indian Union Budget 2021-22: The real estate sector has an important role to play in achieving the government’s vision of ‘Housing for All by 2022’ for India. The Union Budget 2021 can help us accelerate towards this goal through policy impetus for the demand side as well as for the supply side of the real estate ecosystem. Budget 2021 is expected to aid economic recovery and put the economy on the growth path again after the COVID-19-induced setback. As a stimulus for the real estate sector will benefit allied industries such as cement as well as labor markets and thus contribute to the GDP growth and to the economic recovery, the budget should lay emphasis on enabling demand growth in the real estate sector.
To boost housing demand, the tax exemption limit on home loan interest should be augmented. An increased limit for deduction of interest on housing loan under Section 24(b) from the current level of Rs 2 lakh for self-occupied property will incentivize tax payers to invest in real estate.
Furthermore, even the principal deduction under Section 80C should be reviewed. The deduction on the repayment of the principal amount of a housing loan should not be clubbed with other deductions under Section 80C, rather it should be separately allowed, excluding the limit of Rs 1.5 lakh under Section 80C, for an additional sum of up to Rs 1.5 lakh. The last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was in 2014 and an upward revision can, thus, be considered. Other tax easing initiatives such as those with regards to Section 80EEA for first-time home buyers, wherein the existing cap on the property value to Rs. 50 lakh and on the loan amount to Rs 35 lakh can be increased to Rs 75 lakh and Rs 60 lakh, respectively, alongside other measures such as reduction in stamp duty has the potential to stimulate demand in the real estate industry.
On the supply side, I advocate GST reforms and single-window clearance of real estate projects. The current GST rate on under-construction properties is 5% minus the Input Tax Credit (ITC) for premium homes [>Rs 45,00,000/- ] and is 1% for affordable homes [<Rs 45,00,000]. A limited period waiver or reduction on GST will make prices of the properties attractive without adversely impacting the margins of builders. Furthermore, Goods and Services Tax (GST) reforms under 2021 budget should allow set-off of GST paid on input materials during the construction phase against the GST paid on rent and other income from the property upon completion. Without this reform, the lack of input credit causes dual tax levy on asset owning commercial real estate developers that rely on leasing or rentals. The GST applicable for commercial properties that are not sold but developed for leasing is at 18% on the rental income – and should be lowered. The GST reforms will help bring down the property prices and thus spur growth in the industry.
Furthermore, I advocate a single-window clearance system for real estate projects. This would simplify the current process that is marred by multiple approval requirements and expedite project delivery while reducing project costs. Digitization of processes, such as layout approval, NHAI permit, approval for water & electricity, would help to further improve efficiency.
Although the overall impact of COVID-19 on the sector has been negative what’s more telling is that the contours of demand too have changed. For example, the Work-From-Home trend, driven by several organizations adopting ‘remote working’ and many of them planning to continue it for the foreseeable future, is expected to have a strong bearing on the future of residential demand. Many home dwellers are beginning to think about upgrading their current home configuration and new buyers are eyeing units which are designed to enable Work-From-Home for extended periods. These trends have policy implications; policy should not only incentivize the affordable home segment but also the overall real estate sector as a whole.
Budget 2020 heralded many positive changes such as a reduction in GST rates from 12 percent to 5 percent for residential apartments and 1 percent for EWS/LIG category and also provided a fresh stimulus to the affordable housing vision through an extension of home loan subsidy and increased outlay for Pradhan Mantri Awas Yojana (PMAY). During the year, in order to boost housing demand, the Finance Minister announced additional measures such as an additional outlay of around Rs 18,000 crore for PM Awas Yojana. Other demand stimulants such as the Repo rate reductions which led to decrease in home loan interest rates, the reduction in stamp duty in some circles, as well as the moratorium on home loan repayments have mitigated some of the adverse economic impact of the pandemic on the industry. Budget 2021 should build further on these initiatives to drive growth in the real estate sector holistically by incentivizing both the supply side i.e. developers and the demand side i.e. homebuyers.
Budget 2021 has the potential to lay the roadmap for the economic recovery of the nation in a post-COVID world. I am hopeful that the proposed legislation will enable the real estate sector to bounce back, to contribute to economic recovery, and to realize the vision of ‘Housing for All by 2022’.