Having suffered for long years on account of a cyclical downturn, a host of structural factors, and more recently the outbreak of COVID-19 pandemic, the real estate sector has started showing nascent signs of recovery which are needed to be nurtured by the government and the banking institutions to enable it to play the required role in nation-building.
In view of the Covid pandemic, the real estate sector expects some very positive and proactive initiatives from the forthcoming budget which will be presented by Finance Minister Nirmala Sitharaman on February 1. A set of fiscal and non-fiscal incentives are required to help the industry to on to the growth path at an accelerated pace.
These initiatives could be in the form of higher tax exemption limit on home loan interest, incentives to encourage rental for housing and co-working, extending infrastructure status to real estate and additional sops for affordable housing.
2021 was a rollercoaster but new trends are here to stay
The calendar year 2021 was a rollercoaster in the sense that the real estate sector witnessed both good times as well as bad times in quick succession during the course of 365 days. Such a quick change of fortune is rarely noticed in such a short span of a year for a sector that is comparatively stable and known for long cycles of peaks and troughs.
The government’s effort to push the vaccination drive provided some ray of hope to the otherwise somber nation. The crisis was dealt with deftly by the government and ably supported by the Reserve Bank.
The April-June quarter was very bad for real estate. People were uncertain about the future. In the meanwhile, the prolonged COVID-19 pandemic created a new culture of work from home or work from anywhere. Unthinkable a few years ago, the practice of work from home is likely to continue in some way or the other as both the employers and employees have found economic merit in it.
Bounce back and Omicron
The real bounce back in the housing sector was witnessed during the July-September quarter and the following festive season. The pent-up demand for housing became more evident with people speeding up efforts to find housing of their choice and requirement. The developers on their part offered discounts to attract customers. The demand increased for ready-to-move houses. Several new launches in major cities across the country were witnessed.
The new Covid variant, Omicron, did create some tensions, but seemingly the concerns are waning away. Like others, the realtors too are confident that Omicron at most can delay but not derail the cyclical recovery of the realty sector which is currently on the upswing and will zoom in 2022.
A little help from government can do wonders
The sector now needs a little help from Finance Minister Nirmala Sitharaman, and the lending institutions, more particularly the banks.
To enable the real estate to shine bright, FM Sitharaman in her budget should consider raising the corpus of the government-backed stress fund SWAMIH to at least Rs 1 lakh crore, as the current corpus of Rs 25,000 crore has already been committed. This is essential for helping the developers to expeditiously complete the stuck projects and regain the confidence of consumers.
In addition, Sitharaman could also consider giving more tax incentives for both principal and interest paid on home loans. Similarly, the Credit Linked Subsidy Scheme (CLSS) could be extended for EWS-LIG and reintroduced for the MIG segment. The steps taken by the government to promote affordable housing are appreciable, but more needs to be done on this front. The government may consider further subsidizing the interest on loans for affordable housing, both for the buyers as well as the developers.
The government may also think of providing incentives to promote rental housing or co-working spaces on February 1 as the segment holds immense potential to attract institutional investments. The incentives could come in the form of tax benefits for REIT-like investment models.
It must be appreciated that input costs are rising and something needs to be done in this front as well. While the decision regarding taxes on input cost can only be taken by the GST Council, the Union Finance Minister may announce some guidance in her Budget Speech. There is also an urgent need to bring the stamp duty under the ambit of GST so that there can be ‘one nation, one stamp duty’.
The recent crisis in some of the country’s large NBFCs has created liquidity problems for the developers. The sector needs support from the government on this front. The government, the Reserve Bank and lending institutions must come out with workable solutions to address the liquidity crunch. The sector is expecting an announcement from the Finance Minister in this regard in the Budget.
The real estate industry, amongst the largest employers in the country, this time around is looking anxiously at Sitharaman’s budget and also the tax incentives which can help the sector regain its rightful place in the nation’s economic superstructure.
(By Vikas Wadhawan, Group CFO at PropTiger.com, Housing.com & Makaan.com)