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Budget 2022: Real estate industry left wanting more

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Although the real estate sector received a push in the Union Budget 2022, in terms of affordable housing, the industry’s hopes that tax incentives would facilitate the recovery of the segment, remained unfulfilled

Budget 2022 was termed by finance minister Nirmala Sitharaman, as a ‘growth-oriented budget’ that would serve as a blueprint for India’s development in the next 25 years leading to India at 100. Presented by the FM on February 1, 2022, this was her shortest budget speech at 1 hour and 30 minutes. The ‘Make in India’ initiative was the backbone of Budget 2022 with many initiatives surrounding it, aiming to create 6 million jobs in FY 2022-23 according to Nirmala Sitharaman. The infrastructure sector was the star of Budget 2022, in which the real estate segment received a push in terms of affordable housing. Nevertheless, the industry, which was very hopeful of tax initiatives helping in the growth of the segment, received no announcements on that front.

Niranjan Hiranandani, national vice-chairman, NAREDCO, and MD of the Hiranandani Group termed the Budget as one that attempts to address ‘Kaam, Kisan and Kamai’, with sustainability and infrastructure investment as its underlying theme. “Rating it at 7/10, the Budget is clearly about complementing macro-growth with micro, all-inclusive welfare, digital economy and fintech, tech-enabled development, energy transition, bolstering investment and climate action – which augurs well for the nation,” says Hiranandani.

To aid the government’s flagship ‘Housing for All’ mission, the government announced a grant of Rs 48,000 crores for affordable housing under PMAY. In 2022-23, 80 lakh homes under PMAY Urban and PMAY Gramin are aimed to be constructed. Also, 60,000 eligible beneficiaries will be identified in the rural and urban areas, under PMAY.

According to Deepak Goradia, chairman and managing director, Dosti Realty, “This is a growth-oriented budget with a special focus on infra development, planning and design of urban cities, which are much-needed requirements when scaling up for the future. The Rs 48,000-crore outlay for the PMAY scheme will definitely boost the affordable housing sector. And the announcement of five centers of excellence for urban design and planning is a positive step that will complement the overall growth of the real estate sector.”

Stressing on the PMAY allocation, Dinesh Doshi, managing director, Tulsi Realty says, “This new allocation of Rs 48,000 crores for the PMAY in budget 2022-23 will fulfill the dreams of home buyers nationwide, in today’s scenario where houses are at reasonable prices with best home loans at an all-time low. This move will boost the real estate sector and also boost the ancillary industries related to reality.”

Welcoming this development, Rohit Gera, MD, Gera Developments said, “The PMAY scheme has helped lakhs of Indians achieve their home aspiration dreams over the last few years. The extension of the scheme with Rs 48,000 crores being allocated, will continue to help the EWS and LIG sections of society get their own homes.”

Budget 2022 impact on the real estate industry

Budget 2022 has a direct and indirect impact on the real estate segment. The logistic network and the infrastructure projects announced in the country will have a positive impact on the growth of real estate in India.

According to Rajan Bandelkar, President, NAREDCO, “The announcement by the government that it will work with the state government for a reduction of time for land and construction-related approvals and for promoting affordable housing for the middle class and economically weaker sections in urban areas, is laudable. Easing land and construction-related approvals will help the development firms in meeting the delivery timelines. In this light, the establishment of a high-level committee on the urban sector to drive modernization of building bye Laws, TDR reforms, transit-oriented reforms, and sustainable development, including single-window green clearances, will help the sector in the longer run.”

In addition to the emphasis on urban planning by adopting modern laws that will boost the development of the segment in the near future, the government’s plan to launch ‘Ease of doing business 2.0’ will make India a lucrative destination for investment. Overall, the budget proves to be a helping hand for more or less all the sectors, keeping the current disruption in mind, points out Haresh Mehta, CMD, Rohan Lifescapes.

Also, one of the key highlights of this Union Budget is the extension of the ECLGS till March 2023. “Furthermore, the Production Linked Incentive (PLI) scheme to achieve the vision of Aatmanirbhar Bharat is promising and has enormous potential to create job opportunities with additional production of 30 lakh crores during the next keycap digit five years. The PLI scheme is highly relevant especially for the real estate and organized home interiors sector, which is dependent on other countries as the overall costs are still much higher for manufacturing in India, given the continued global crisis in the supply chain. I am confident that this will further boost the organized home interiors sector in India and ensure increased dependency on the manufacturing requirements domestically,” says Srikanth Iyer, CEO, and co-founder, HomeLane.

Stakeholders expected more pro-real estate initiatives

While industry experts have welcomed the grant of Rs 48,000 crores under the PMAY, they are disappointed by the lack of other incentives. Although affordable housing is a priority area for the government, the real estate industry was expecting a number of immediate demand-side pushes for the sector which remained unaddressed in this budget.

“The government could have given a further boost to overall real estate which fuels the Indian economy and supports over 250-allied industries. There is a huge opportunity in real estate that would enable faster economic recovery. The real estate sector has started showing signs of recovery after the disruption caused by the pandemic. However, it requires careful support from the government, in order to sustain the recently-achieved growth momentum. There are several grey areas vis-à-vis schemes, taxation, funding, etc., where the government can provide a helping hand going forward. It is imperative for the government to pay special attention to the real estate sector and have provisions for its well-being in the near future,” says Ramani Sastri, chairman, and MD, Sterling Developers Pvt Ltd.

Concurring, Vipul Shah, managing director of Parinee Group says, “Real estate is currently reviving from its lows. From this Budget, we were hopeful that tax incentives or some credit provisions will be facilitated, to get the segment up and running the way it was around seven to eight years ago. Although this will take time, we were still anticipating a start. This Budget has nothing for the developers and the hardships they are facing.”

Adds RK Arora, chairman, Supertech Ltd, “The government has treaded a fine balance to lead the economy to high GDP growth rate by investing in the infrastructure sector, yet keeping the fiscal deficit within manageable limits. In the backdrop of the ambitious ‘Housing for All’, PMAY has been given due importance, however, largely through the government’s flagship programs rather than the incentives real estate development companies were hoping for.”

Like other segments, even the real estate sector was impacted due to the pandemic. Surendra Hiranandani, chairman, and managing director, House of Hiranandani explains, “There were some expectations from the sector that would have boosted demand and offered increased deductions towards the principal/ interest payment of home loans. There was a need to increase the scope of affordable housing, by raising the cap of Rs 45 lakhs for metros. This would have increased the scope of affordable housing and a large number of home-buyers could have then benefitted from the subsidies available for this segment. Also, infrastructure status has been a long pending demand of the sector. It would have made a major difference in accessing capital at a reasonable cost. Nevertheless, we are optimistic and look forward to witnessing the beginning of a new and robust economy.”

Government increases differential between circle rates and agreement value to 20%

The move is also likely to help developers, as they can now offer their property at a lower rate than the prevailing circle rate, to monetize their idle assets.

By Amit Sethi

November 12, 2020: In a bid to provide an additional boost to the economy, as well as the home buyers, union finance minister Nirmala Sitharaman, on November 12, 2020, announced a new stimulus package under Atmanirbhar Bharat 3.0. In the latest package, the center has decided to increase the differential rate between the circle rate and the agreement value from 10% to 20%. This is will be applicable till June 30, 2021, for only primary sale of residential units of value up to Rs 2 crores.

In Budget 2020, the government had announced an increase in the threshold limit for the difference between the transaction value and the circle rate to 10%, from the previous 5% level.

According to the industry experts, the government’s move will provide relief on capital gains tax for the sector as a whole, on property valuations which are up to 20% below the circle rate, as against the earlier provision of 10%.

Commenting on the FM’s announcement, Niranjan Hiranandani, national president of NAREDCO and MD of the Hiranandani Group, said: “A differential of above 10% between the circle rates and agreement value, translates into tax penalties under Section 43CA of the Income Tax Act. This has been a major stumbling block for price rationalization. This pinches, especially when it comes to liquidating unsold inventory. Industry bodies like NAREDCO have been pointing out the urgency with which this needs to be sorted out and the finance minister, in a limited-period offer (up to June 30, 2021), has enhanced this differential from 10% to 20%. This is welcome. However, the FM also mentioned a cap on the flat value, to be eligible for this – Rs 2 crores. This will result in most projects in metro cities not being able to take advantage of the relaxation.” The ideal situation, according to Hiranandani, would have been one where this relaxation would be applicable to commercial real estate transactions, as well. Real estate as an industry and end-users, both, would benefit if these two suggestions can be incorporated, he said.

Earlier, following the Budget, Nimish Gupta, FRICS – MD, south Asia, RICS, pointed out that the announcements in the Budget would provide some respite to property buyers, in cases where the gap between the circle rate and the market rate was disproportionately high.

  • “Before Budget 2020, any gap over 5% would be added to the buyer’s income and would be liable to tax at nominal rates. Now, the same has been enhanced to 10%, which would encourage transaction activity in property markets,” explains Gupta.
  • The move is also likely to help developers, as they can now offer their property at a lower rate than the prevailing circle rate, to monetise their idle assets. This will help them to clear their existing inventory, to generate liquidity for their other projects.

However, it is essential to note that property prices and trends are not uniform across the country. Some cities are witnessing good growth and appreciation in prices while others are witnessing prolonged stagnation in demand and corrections in property rates. With country-wide lockdown due to Covid-19, real estate was one of the worth-affected sectors in the country. With this, the government may also consider a mechanism, to extend this beyond June 2021 or opt for location-based relaxation to allow more than 20% relaxation, to revive the market. Circle rates also need to be revised in a more realistic way, to address the issues related to the fall in property rates.

Circle rate relaxation to bring relief to buyers and sellers

State governments generally revise the circle rates of properties at regular intervals. This is done, to discourage the evasion of stamp duty and registration fees by sellers and buyers, by mentioning a lower property price than the actual prevailing market rate. Certain restrictions discourage sellers and buyers from entering into transactions below the circle rate/ guideline value. However, due to the slowdown in the real estate sector, property prices have not increased across various cities in India. Consequently, developers may be unable to clear their inventory by selling their properties at a discount that brings the prices below the circle rates. While the government has allowed some relaxation between the circle rate and the market rate, it is not sufficient for the revival of the realty sector in the prevailing situation. So, the government has proposed to increase this relaxation in Budget 2020.

What if the circle rate is more than the market value?

The existing rule stipulates that the transaction value of the property should not be less than the circle rate by more than 5%, else the difference is considered as income and would result in an additional tax burden for the buyer and seller. For example, if you bought a property worth Rs 30 lakhs but the circle rate was Rs 35 lakhs, then, the difference of Rs 5 lakhs, would be considered as other income in the buyer’s hands and it would be taxed accordingly. The registration charges and stamp duty would also be paid at the applicable circle rate. From the seller’s point of view, as the property is registered at the applicable circle rate, he has to pay a higher capital gains tax. However, the buyer and seller do not need to pay any excess fee, if the difference between the transaction value and circle rate is below the stipulated 5% level.

What is the circle rate limit?

Budget 2020: Circle rate relaxation to bring relief to buyers and sellers

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