The real estate sector has grown significantly over the past year with residential real estate, across most markets, continuing to build on its momentum from 2021. Commercial real estate had a mixed year in 2022 with flexible office providers performing well. However, the sector is still facing some issues like high input costs and rising interest rates.
Keeping this in view, developers are again betting big on the Budget 2023, and expect it to offer some positives to help strengthen the real estate market.
First, they need more tax sops for homebuyers, like hiking the home loan deduction limit under Section 24 of the Income Tax Act, and incresing the deduction cap on the home loan principaland amount, which will help boost affordability and housing sales.
Kamal Khetan, Chairman & Managing Director, Sunteck Realty Ltd, says the Indian real estate market has displayed resilience, and the upcoming Union Budget 2023-2024 offers an opportunity to continue that stability and growth. Therefore, the government should extend further support by providing tax relief to homebuyers and consider reforming personal taxes such as reduced rates or modified tax brackets to foster more housing demand.
“To boost consumer buying sentiments further, the deduction cap on the principal amount of a home loan, which is currently set at Rs 1.5 lakh p.a, should be increased to Rs 4 lakh p.a. Additionally, to encourage Housing for All, the government should consider increasing the limit of tax deduction on interest for housing loan from Rs 2 lakh p.a to at least Rs 5 lakh p.a. Furthermore, for price stability and to mitigate the risk of rising raw material cost, input tax credit on GST should be reinstated,” adds Khetan.
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Harsh Vardhan Patodia, President, CREDAI, has similar views. “As inflation continues to impact the economy and the borrowing prowess of the consumer, there is a compelling need to increase the existing limit of Rs 2 lakh on exemption of interest paid on home loans to at least Rs 5 lakh. This would enable the consumer to have a higher disposable income and eventually pave the way for attracting prospective homebuyers as well,” he says.
More incentives to boost affordable housing are also the need of the hour as in alignment with the PM’s vision of ‘Housing for All’, the realty sector needs to keenly focus on the growth of the affordable housing segment.
However, “the last 3 years have transformed the prices for housing, and the current price cap of Rs 45 lakh on units to qualify as affordable housing needs to be revised as there have been substantial changes in the prices of various construction raw materials, labour costs & overall construction costs. This has impacted the overall price of housing leading to ineligibility for tax exemptions under Section 80IBA. We believe this can be revised if the officials expand the definition of Affordable Housing units only to carpet area without any price cap,” suggests Patodia.
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Industry experts say the Indian real estate industry is one of the fastest-growing sectors in the country, driven by factors such as urbanization, rising disposable incomes, and a growing middle class. The industry has experienced a paradigm shift in the last two years, with people looking out for a sustainable future – the need of ‘having a house’ has increased massively.
Siddharth Katyal, Group Director, Omaxe Ltd, says, “Following the enormous growth last year, home ownership has unquestionably become a secure investment in these extremely volatile times — making 2023 a crucial year for robust growth in the real estate market in both residential and commercial segments. We believe that the government’s ‘Housing for All’ objective will straightforwardly incentivize them to lease their homes to the targeted segment, augmenting the efforts to increase housing stock in this segment. We are optimistic that the government would shape its policy actions to promote real estate demand even further this year. With a home being a constant appreciating asset that creates generational wealth, we can assume that the future of Indian residential real estate is compellingly hopeful.”
Developers are also expecting a reduction in the GST rates for key raw materials, and re-introduction of input tax credit which may help them tide over inflationary pressures.
Hari Kishan Movva, Senior Vice President, SILA, says, “Given that the inflationary environment is the key risk for real estate, we are also expecting a leeway in terms of reduction in GST rates for key raw materials and re-introduction of input tax credit which would help developers tide over inflationary pressures. This will also help maintain affordability and boost residential sector growth. For projects that are stuck, the ideal way out will be to increase allocation to the SWAMIH Fund and introduce relaxation on project eligibility criteria. To increase the overall industry volume and capital availability, it is imperative to allow LLPs to raise capital through issue of debentures. And lastly, a reduction in long-term capital gains to 10% and reducing the holding period to 12 months from the existing 24-36 months would also be helpful for the industry.”
Pratik Kataria, Director, Sainath Developers, and President, NextGen Committee, Naredco Maharashtra, says the pandemic has had a much bigger impact on the Affordable Housing Sector and the Housing Sector. The government should, therefore, offer more incentives to make sure the affordable housing vertical of real estate bounces back like the other sectors have.
“The data from the Affordability Index concludes that the significant rise in the borrowing cost is beginning to dent the affordability of homebuyers to buy their new homes. An incentive that will allow the homebuyers to get a considerable amount of deduction of the interest component of their home loan from their total income would bring rejoice to the homebuyers wherein the current deduction limit, which is Rs 2 lakh, can be increased to Rs 4 lakh,” says Kataria.
Personal tax relief, either by readjusting the income tax slabs or cutting the tax rate, will have a remarkable effect on the overall sentiment for the Financial Year 2023-2024 with more disposable income in the hands of homebuyers.
“A reduction in the current 20 per cent capital gains tax to 10 percent would be ideal from an investor’s perspective. Moreover, the cap of Rs 2 crore on capital gains for reinvesting in two properties should be removed to further build momentum. Additionally, in order to boost the sentiments of homebuyers towards the residential housing sector, the rent from a non-self-occupied second property, regardless of whether it is given on rent or not, should not be taxable. Also, reduction in the house property holding period to 12 months from the existing 24-36 months should be qualified as long-term capital asset for an investor,” adds Kataria.