Affordable housing gets a boost from Budget announcements

February 04, 2021 2:39 PM

The budget proposed to extend the eligibility period for claim of additional deduction for interest of Rs 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March 2022.

Recently, more than 80 per cent of the new launches in the residential segment was in Rs 45-lakh price bracket.

The focus of the Union Budget 2021 was on overall economic development and the FM made sure that the country takes an economic leap through various announcements targeted at MSMEs and startups. The real estate sector, a potent engine of growth, was once again left high and dry with no direct incentive falling in its kitty. However, one segment that stood out was affordable housing, which will benefit from the tax holidays provided for an additional year.

The budget proposed to extend the eligibility period for claim of additional deduction for interest of Rs 1.5 lakh paid for loan taken for purchase of an affordable house to 31st March 2022. Looking at people’s experience in the last one year, affordable housing will get more buyers to secure their lives by owning a home.

Recently, more than 80 per cent of the new launches in the residential segment was in Rs 45-lakh price bracket, that indicates the market acceptability. The FM targeted the nerve of real estate demand by focusing on the segment; the boost provided by the announcements could be witnessed in the coming months when more projects will hit the market.

Push to infrastructure in the Budget will also indirectly benefit the segment as better infrastructure will help projects located or planned out of city limits. The government has already allocated funds for infrastructure investments to increase transport quality. Multi-modal infrastructure development such as highways, rail and metro enhances living standards and increases real estate demand.

Some other announcements that will have a positive bearing on the sector include an extension of tax holiday for start-ups, rules to eliminate the double tax for NRIs on foreign retirement funds, MSME allocation to be doubled, reduction in margin money requirement from 25% to 15% for startups, allowing one-person companies, and highway infra work proposed in various states. With a boost to startups, the people’s financial situation will improve, and they will seek the safest investment option, i.e. real estate. The government has also proposed to infuse Rs 20,000 crore for bank recapitalisation, as the FM emphasised the need to clean up the banks’ books. We hope that more funds will reach the market, and banks will extend some of it to the real estate sector.

A little bit of clarity on Input Tax Credit would have made the matters even better for the sector. Some demands, including industry status, needed urgent attention, but the FM did not touch upon these issues. The growth driver of real estate should not be ignored as it can catapult the Indian economy into the top league of global economies. The Budget was not very assuring for the sector, but we understand that it was challenging for the FM as everyone was looking for incentives. However, the sector will prosper as it depends on overall economic development, and the Budget has paid attention to all those aspects.

(By Rajat Goel, Joint Managing Director, MRG World)

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