Union Budget 2021 India: What real estate needs desperately is a push from the government in the form of policy support for its recovery and smooth functioning.
A more determined infrastructure push, not only in the form of allocation of funds but also with strict guidelines on actual deployment towards the infrastructure development is expected from this budget.
Indian Union Budget 2021-22: One of the biggest employers in the country contributing close to 8% of the nation’s GDP – that’s the real estate sector for you. The real estate sector intrinsically has the potential to be one of the key drivers for supporting the overall growth in the economy, especially now when the country is reeling under the pressure of the impact of the pandemic. Being heavily dependent on government policies and regular cash flow, what the real estate sector needs desperately is a push from the government in the form of policy support for its recovery and smooth functioning.
As the countdown to the budget has begun, there is a lot of anticipation among the industry players for benefits aimed at enhancing demand and liquidity in the sector especially since multiple measures were implemented to keep the sector going during the pandemic. Though these measures like reduction in repo rates leading to lowering of home loan interest rates, the moratorium on EMIs, etc were supplementary interim measures, what the industry needs is focussed measures to help bolster sustained demand.
For the home buyer: Though affordable housing is likely to be a key focus area this year as well, nonetheless, from a larger market perspective, focussed tax incentives would need to be introduced to bring momentum into the market from the investor and end-user segment. Reduction in stamp duty in Maharashtra for a limited time-frame was a clear example of creating a pull in the market which saw a lot of fence-sitters conclude transactions to save costs. Immediate cost saving or increase in cash-in-hand through higher tax relief would be needed to mobilize housing demand. This could be done through multiple ways, some of which include an increase in the tax rebate on home loan interest rate under Section 24 of the Income Tax Act, which is currently capped at INR 2 lakh for self-use properties. Maybe on the lines of HRA, this cap could be increased at a differential amount depending on the city.
On similar lines, though a rented property generates income for the owner, in a lot of cases, the liability from the house in the form of interest payments and property tax outweigh the inflow in the form of rental income. This loss on house property could be set-off against income under section 71 of the Income Tax Act. However, in the 2017-18 budget, this was capped at INR 2 lakh. An increase in the upper cap could help boost demand from investors. Section 80C currently covers deductions on home loan principal repayment under the overall deduction limit of INR 1.5 lakh per year. This deduction could be considered separately and not combined with the overall deduction to incentivize home buying. On the affordable housing front, an extension of CLSS for a few more quarters can help create demand for affordable housing units as the economy starts to revive. Additionally, increasing the income criteria bracket under the PMAY scheme would help include more home buyers under the housing scheme and help enhance demand for affordable homes in the sector.
For the home builder: Liquidity has remained a concern for developers since quite sometime now. The pandemic has only worsened the situation. SWAMIH (Special Window for Affordable and Middle Income Housing) fund set up recently to provide last-mile funding to affordable and middle-income housing projects, has been a great initiative. These funds need to be continued and more capital is required to be pumped in to ensure that a larger number of projects across Tier II and III towns get benefitted. Relaxation in ECB regulations can enable borrowing by a broader real estate segment and provide an additional source of funding. The spur in demand from buyers would help developers get a healthy cash flow to finish their projects faster as well.
For the other segments: While REIT as an investment avenue is relatively new for India, but it has been a positive development for the real estate sector. With successful REITs already launched, there will be additional REITs to follow in due course. This should act as a catalyst for REITs in other segments of real estate like warehousing & logistics. However, a lot of policy support will be required to enable other key sectors like student housing, organized rental housing and hospitality to take off and eventually be included as REIT offerings. Policies specific towards the promotion of domestic tourism can help in the revival of the hospitality sector which has been hit significantly by the pandemic. For example, LTA norms can be extended to include the cost of hotel stays along with the current travel costs.
Finally, a more determined infrastructure push, not only in the form of allocation of funds but also with strict guidelines on actual deployment towards the infrastructure development is expected from this budget. This will not only provide an impetus to the real estate sector but also generate more jobs to help in the overall growth of the economy.
(By Divya Seth Maggu, Director, Valuation Services at Colliers International India)