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Budget 2022: Expectations of the real estate sector and challenges ahead

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The industry narrative ahead of the Union Budget 2022-23 is more balanced to accommodate the concerns of all the stakeholders

Prior to every Union Budget, real estate stakeholders get into a huddle to set the narrative that could influence the fiscal policy. They are conscious of the fact that the business of real estate gets more affected by the fiscal policy than the recurring monetary policy that shapes the outcome of floating interest rates.

This raises several questions:

  • What is in store for the sector in the Union Budget 2022-23?
  • Has the industry learned to live with the reality of gaps between wants and needs?
  • Have the stakeholders become more realistic with their budget expectations?
  • Is the real estate fraternity conscious of the fact that the business cannot witness growth if the concerns of the most critical stakeholder – the home buyers – are not addressed?

Prima facie, the industry narrative ahead of Budget 2022 is more balanced to accommodate the concerns of all the stakeholders. As a result, demands like the industry status, single-window clearance, ease of project finance, etc., are not as loud as in previous years. Instead, there is a desire to see an increase in the limit of tax deduction given to home loan borrowers to Rs 5 lakhs. Demands are also being made to change the definition of affordable housing, lower long-term capital gains tax to encourage more investment, and new provisioning for rental housing schemes.

Change in budget rhetoric

  • Oft-repeated & unmet demand on the backburner
  • Demands in sync with the market realities & feasibility
  • Focus on demand-side
  • Balancing industry needs with buyers’ concerns

Real estate sector’s expectations from Budget 2022

Lincoln Bennet Rodrigues, chairman, and founder, of The Bennet and Bernard Company, admits that the expectations from the upcoming budget are high and the industry is awaiting big announcements and policy support that can not only revive the sector but also alter the future of the real estate sector. More tax sops and higher relief on the home loan rates will woo a broader segment of home buyers and investors to buy property. The existing tax exemption on housing loans should be raised to give impetus to buyer sentiment. There is a specific need for income tax relief on a second home which will benefit home buyers in a big way and also stimulate the real estate sector.

“The budget can also support the industry by ensuring reduction in compliance issues. It should also strengthen the existing financing systems to provide liquidity, as developers need a rational capital flow to keep up the work process. We are also hoping for GST reforms, as this will reduce overall property cost and push demand for homes, granting of industry status to the overall real estate sector, and implementation of single window clearance amongst others. We also hope that there will be more announcements to enhance ease of doing business for the developers,” says Rodrigues.

Ajay Sharma, MD, valuation services, Colliers India, believes extending the tax concessionary benefits pertaining to affordable housing, increasing tax set-off for housing loan interest payment under sections 24 and 80EE, and specifically increasing the standard deduction, could increase the cash available through savings for taxpayers. These, combined with more specific curative measures like long-term capital gains period be reduced for REITs and increase the total deduction available under 80C where the home loan principal repayment deduction is allowed, will increase investment into real estate.

“The budget should focus on bringing all housing segments under one single GST slab while extending additional benefits to affordable housing to the buyers through tax concessions thereby sustaining the momentum for affordable housing and at the same time increasing growth of other housing segments through GST relief to developers,” says Sharma.

What could transform the housing market?

  • Faster economic recovery
  • Job growth
  • Income Tax relief on second homes
  • Funding gap to be addressed
  • Tax benefits on REITs investment
  • GST & Stamp Duty waiver
  • Increase in the limit of affordable housing
  • Liberalizing foreign investment

Budget 2022: Income tax deductions on home loan

Nitesh Kumar, MD, and CEO of Emami Realty point out that Section 80C of the Income Tax Act allows a deduction for home loan principal repayments. Along with home loans, Section 80C provides deductions for various other expenses and investments. Currently, these deductions are limited to Rs 1.5 lakhs. This limit has remained the same for a long time, so we are expecting it to be increased. The government can introduce a separate section under Section 80C for the deduction of Rs 1.5 lakhs from home loan principal repayments. Middle-class taxpayers generally exhaust their rebates on investments like PF, PPF, and life insurance, limiting their eligibility to claim tax benefits on loan principal payments.

“Currently, the interest rate on home loans is around 6 to 7%. Nevertheless, if someone takes a loan of more than 30 lakhs, they will not be able to deduct the full interest paid in the first few years. The deduction of interest rates is limited to 2 lakhs per year under Section 24(b) of the Act of Income Tax. The industry demands a minimum tax rebate of Rs 5 lakh as against the current limit of Rs 2 lakh,” says Kumar.

How Union Budget 2022 can boost housing demand

Ramani Sastri, CMD, Sterling Developers, agrees that this year the demands go beyond the usual expectations of single-window clearance and industry status. The appetite from end-users needs to be rekindled through targeted demand-side measures. Personal tax relief, either by tax rate reductions or amended tax slabs, is the need of the hour, which has been long overdue. To boost the consumption in this sector, the government should focus on providing more liquidity to the taxpayer by raising the ceiling of the rebate on the home loan interest.

“We also expect input tax GST credit for developers, reduction in stamp duty which has happened in several states, and registration charges which make a sizeable difference to the cost of a project, thereby boosting home buyers’ sentiment and encouraging them to go in for property purchase. There is a need to redefine ‘affordable housing’ to Rs 50-60 lakhs as this would expand the benefits for home buyers and therefore boost the end-user demand,” says Sastry.

Budget 2022-23 and foreign investments in realty

Shraddha Kedia-Agarwal, director, Transcon Developers, points out that amid the pandemic, the government has recalibrated its approach towards remobilizing the economy and introduced various reforms to ensure adequate liquidity in the system such as keeping the interest rates low, additional liquidity support to NBFC, and HFCs. RBI’s accommodative stance for such a long duration too helped mitigate the effects of Covid-19 on businesses and was a key to the recovery of real estate and the overall economy. These reforms have eventually proven to be positive for the economy in the long run.

“The outlook on India’s economic growth in the coming years looks very positive with the way the government has tackled the Covid crisis. The upcoming budget needs to be more attractive to foreign investors as it will be an ultimate platform to announce further incentives which will attract more foreign investments into the sector. Considering the rupee’s recent muted performance, this budget is an ideal time for reforms targeted at foreign inflows into India. We expect the government to reduce the tax on interest income which will help accelerate capital inflows to India. Liberalizing foreign investment norms in real estate is another widely expected move,” says Shraddha.

Critical missing link

  • Road map for ease of project finance not defined
  • Ease of doing business
  • The tangible benefit to affordable housing developers
  • Addressing compliance issues

Budget 2018: What do home buyers and developers want?

Can the finance minister unveil a budget that is friendly towards home buyers, as well as developers? We look at the demands of both segments, ahead of the Union Budget for 2018-19

January 31, 2018: A friendly budget is always on the wish list of everyone. As the Union Budget for 2018-19 approaches, the moot question is whether the budget should be buyer-friendly or builder-friendly and whether both the stakeholders are on the same page, this time around? To understand this let us first look at the wish list of each segment.

Home buyers’ expectations from Budget 2018

  • Reduction in income tax slabs.
  • Lower rate of interest on home loans.
  • Reduction in the Goods and Services Tax (GST).
  • Reduction in stamp duty.
  • Increase in the cap on interest and principal reductions.
  • Restriction on loss from house property.

Builders’ expectations from Budget 2018

  • Industry status for real estate.
  • Capital for land investments in the affordable housing segment.
  • Single window clearance/smoother approval process.
  • Reduction of long-term capital gains holding period for REITs.

Ashish R Puravankara, managing director of Puravankara, points out that in a nation with such diversity and population, the budget is a tough balancing act of allocating necessary resources to every sector. So, the best we can hope for is that no one feels excluded, he says.

“The critical concerns for developers, lie in the realm of policy implications, approvals and sanctions and ease of doing business. For the home buyers, the concerns pertain to price points, developer reputation and quality of the end product. While the Real Estate (Regulation and Development) Act (RERA) may have eased some of these direct concerns, the larger picture of economic stability and job security, is where the common man’s hopes lie, vis-à-vis the union budget,” says Puravankara.

The argument in favor of industry status for real estate

JC Sharma, VC, and MD of Sobha Limited admit that while the sector has witnessed some positive reforms in the recent past, several concerns remain. In the union budget for 2017-18, infrastructure status was conferred to only the affordable housing segment. However, if industry status is granted for the entire sector, developers will be able to secure funding for their projects at reasonable interest rates, which will spur new launches and better quality projects, he maintains.

“It will enable developers to deliver projects on time, as well. This will, in turn, augur well for employment generation, the government’s ‘Housing for All’ mission and help to build a healthy ecosystem. Similarly, the tedious approval process for projects, leads to delays in deliveries and increases cost in the range of 10 to 30 per cent. Therefore, it is important to have a ‘single-window clearance’, a long-standing demand of the realty sector,” says Sharma.

Sops for buyers and builders will help the overall economy, say, developers

Aditya Kedia, managing director of Transcon Developers, concurs that project delays and cost overruns are linked with delays in obtaining approvals. “The government should come up with some mechanism, which improves the ease of doing business for the sector. Single-window clearance and large-scale digitization are the need of the hour,” he explains. From the home buyer’s perspective, a relaxation in income tax for first home buyers, reduction in the HRA limit, greater tax savings on home loan, and home insurance, are some of the much-needed measures, he says.

The real estate fraternity has repeatedly publicized the fact that this sector contributes about 6-7 percent to India’s GDP and plays an important role in accelerating infrastructure development and capital investment. The housing sector alone contributes around 5-6 percent. They also claim that the positive effects of the sector impact ancillary industries such as tiles, paints, fittings and fixtures, cement and steel, etc. The sector claims to be the second-largest employment generator in the country. Therefore, they assert that it is imperative for the budget to address the interests of developers and home buyers, alike.

However, whether the finance minister can tackle the concerns of buyers, in a financial ecosystem, where de-growth in jobs is a big deterrent in home buying, remains to be seen.

Source-https://housing.com/news/budget-2018-home-buyers-developers-want/

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