2022 was an eventful year for Indian real estate as transaction volumes jumped by more than 50% in most of the major metros in India, in contrast to 2021. Interestingly, the growth juggernaut was not just restricted to big metros, but in Tier 2 and 3 cities as well real estate demand is gaining momentum.
Industry pundits believed that a rise in interest rates will weigh on the market demand, the impact was minimal though. The positive momentum is expected to continue in 2023, as the overall economy looks upbeat and the job market is healthy.
High Hopes from the Budget
The upbeat industry is looking forward to a real estate-centric budget. A budget with a key focus on demand-generation can multiply the growth momentum and further give a positive thrust. This won’t only result in renewed optimism in the industry but also contribute to a thriving economy. After all, real estate constitutes close to 8% of the overall GDP and there are around ~ 300 ancillary industries that depend on the sector. Accelerated growth in real estate will eventually drive the economy and help in a faster recovery. This will also create new jobs and expand the job market further.
On the contrary, a slowdown in real estate and infrastructure spending will naturally result in muted demand in a host of sectors such as iron & steel, cement, timber & wood, ceramics, etc. which can also adversely impact the job market and overall spending.
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Concentrated Efforts to Build Growth
In this budget, the government should mull impetus such as an increase in home loan interest deduction. Under section 24 of the Income Tax Act, one can avail of a deduction of up to INR 2 lakh on home loan interest. If the government increases the limit to Rs 5 lakh, it can be a great help to both buyers as well as developers, as due to other succeeding/ successful factors, the prices and EMIs of homes have gone up.
Meanwhile, for a long time, the developer community has been clamoring about GST rationalisation and it should be taken into consideration. There are high GST rates of 28% and 18% on steel and cement, respectively. Already raw material prices are soaring which will further rise due to high GST rates. This undermines the profitability of the developer and many times they are forced to pass it on to the homebuyers. Moreover, the developers can’t claim input credit tax on the residential projects. Hence, streamlining the GST regime can be of great relief for every stakeholder involved.
Reduced home loan rates
Whenever Interest Rates go down, there is a clear indication in increase of property purchases . The cost of credit and real estate demand are linked with each other. Amidst a rise in inflation and tightened global liquidity, it will be difficult to give a blanket reduction in the interest rates. However, the government can contemplate rolling out special schemes for first-time home buyers, buyers from economically weaker sections, etc. It can also consider enabling measures such as low down payment rates.
The year 2022 was one of the most eventful years for Indian real estate with sales recovery observed in many of the major markets in the country. Both residential sales and commercial leasing picked up, led by healthy economic growth and a rise in demand. Meanwhile, for the upswing to continue in 2023, it is important for the GOI to take further proactive steps. A healthy economy and real estate feed into each other. Proactive steps such as increasing the limit of home loan interest deduction on income tax returns and reducing capital gain tax can give a further push to consumer spending, investing, and trading, and hence will be beneficial to the sector in the longer run. Meanwhile, GOI should also try to create new avenues of lending for the developer fraternity. Developers play a critical role in the overall realty ecosystem and it is important to help them get easy access to credit.
Committees like NFC (created by Real Estate Councils) should be encouraged and supported to provide better and easier access of funding to developers, which would increase the scale of Infra & Development in the country.
(By Ankit Goel, Director, Goel Ganga Developments)