The real estate sector in India sprung a surprise in 2022 despite global headwinds pointing towards recessionary sentiments. Even as the RBI raised the repo rate by 225 basis points between May and December 2022, there was no slowdown in housing sales. On the contrary, residential real estate sales witnessed a 50% YoY growth by December and a record increase in new launches.
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A recent PropTiger Report titled ‘Real Insight Residential – Annual Round-up 2022’ shows that as many as 3,08,940 residential units were sold in 2022 compared to 2,05,940 in 2021. Additionally, there was a 101% YoY growth in new launches as 4,31,510 new units were launched in 2022 compared to 2,14,400 new units launched in the previous year.
The real estate sector has a massive role in India’s growth story. It currently contributes around 7% of the country’s economy while employing over 50 lakh people and directly or indirectly benefiting more than 200 ancillary sectors. As Finance Minister Nirmala Sitharaman prepares to present her fifth budget speech on February 1, she can incorporate several long-term and short-term measures to take the real estate sector to a new high.
FM Sitharaman can include the following short-term measures to ensure no break in the current momentum amid rising interest rates, inflation and the anticipated negative global headwinds.
1. Fiscal support and enhanced credit availability
The upcoming budget can increase fiscal support to the real estate sector with measures such as enhanced allocation under the SWAMIH scheme. It may be raised from the current Rs 15,000 crore to at least Rs 50,000 crore. This move will not only help in completing stalled projects but also rebuild the trust of homebuyers. There is also a need to increase credit availability by expanding the reach of housing finance companies or announcing tax incentives for lenders extending credit support.
2. Interest subsidy for first-time buyers
Amid rising home loan rates, the budget can attempt to incentivise first-time home buyers by extending the credit-linked subsidy scheme for another financial year.
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3. Tax incentives for home loan borrowers
The upcoming Budget can offer significant tax relief to home loan borrowers. Currently, there is a tax rebate of up to Rs 2 lakh on housing loan interest under Section 24 of the Income Tax Act. However, as housing prices and home loan rates have gone up significantly, the tax rebate under Section 24 should be raised to at least Rs 4 lakh.
4. Revise affordable housing definition
As per the PropTiger report, the average price of housing units across top cities of India will increase by 5-13% in 2022. The rising property cost necessitates a revision in the affordable housing definition.
Revise definition of affordable housing upwards so that more and more people can take benefits announced by the Government for this section and help in further accelerating Housing for All.
Every Budget lays the path for the future. With the Budget 2023, the Finance Minister can set a solid foundation for the long-term growth of the real estate sector and help it increase its contribution to the nation’s GDP to 12-13%. For this, several measures that will have long-term impact needs to be implemented. That said, the following are some recommendations:
1. Industry status
Providing industry status to the real estate sector is a long pending demand. Given the industry’s growing importance in India’s economy and the well-being of a rising class of aspirational citizens, the industry status will solve this sector’s capital availability issue.
2. Single window clearance
The upcoming budget can initiate providing a single window clearance platform to the real estate sector. It will fast-track project development and improve customer confidence while reducing uncertainties around approvals and litigations. It will also reduce the compliance and approval costs for the developers.
3. Regulating rental and resale transactions
There is a strong need for regulatory clarity on rental and resale transactions. The role of brokers in resale and rental transactions also needs to be correctly defined to improve transparency and ease of buying and renting. This will further help improve the accountability of different stakeholders’ volume of transactions and help the sector become more organised.
4. Digitisation of property records
As India rapidly becomes a digital economy, the upcoming budget can make a transparent push to digitise property records. This will further bolster accountability and truthfulness in the property market and increase the number of transactions. It is estimated that around 66% of all civil cases in India are related to land or property disputes. Digitisation can sharply reduce the number of such litigations and free up the court’s valuable time for other pressing issues.
While real estate being a State subject is a significant roadblock in the digitisation of property records, the Government can think of creating a tech stack on similar lines like Aadhar/ UPI stack backed by RERA-type central legislation that state agencies can leverage for achieving the purpose.
Coming on the back of the pandemic shock, the strong growth posted by the residential real estate sector in late 2021 & 2022 is testimony to its resilience in the face of all odds. While pent-up demand from the past two years impacted by the Covid-19 pandemic played a prominent role in high residential unit sales in 2022, the growth momentum is expected to continue in 2023. By accommodating the above recommendations in the budget, the Government can turbocharge the sector’s growth and shape buying trends in time to come.
(By Vikas Wadhawan, Group CFO, REA India (Housing.com, Makaan.com & Proptiger.com)