Budget 2020 Expectations: Real estate looks for industry status, increased tax benefits on home loans
Budget 2020 Expectations for Real Estate: When FM Nirmala Sitharaman presents the Union Budget 2020 in the Parliament on February 1, real estate developers will look forward with bated breath to the sector being granted industry status in the country.
Budget 2020 Expectations for Real Estate: When Finance Minister Nirmala Sitharaman presents the Union Budget 2020 in the Parliament on February 1, real estate developers will look forward with bated breath to the sector being granted industry status in the country. The demand for bestowing industry status on real estate has been a long-pending demand of developers. A single-window clearance system, which can ensure timely completion of projects through timely approvals, is another long-pending demand that real estate developers would want the finance minister to address in her budget speech.
In November, the finance minister had announced an Alternative Investment Fund (AIF) of Rs 25,000 crore for the real estate sector in India. While the Central government had committed to pump in Rs 10,000 crore, the balance was to be met from contributions by the State Bank of India and the Life Insurance Corporation. The Union government may set a timeline for releasing this fund which is expected to rev up construction work of nearly 4.58 lakh housing units in as many as 1,600 stalled residential projects across the country.
Further, the Central government will also have to think out of the box to meet challenges of liquidity faced in the real estate sector following the Non-Banking Financial Companies (NBFC) crisis owing to asset-liability mismatch. The liquidity crisis has resulted in lowering the confidence of developers as too many projects have been stuck owing to paucity of funds. Any measure taken by the government to increase liquidity in the market will ensure positive sentiments in the real estate market and contribute to the overall growth of the Indian economy.
Big players in the real estate sector have ventured into ‘affordable housing’ following the Central government’s policy initiatives in this segment. At present, affordable housing has to meet the conditions of a maximum of 60 square meters of carpet area and Rs 45 lakh as the highest cost in order to avail reduced Goods & Services Tax (GST) rate of 1 per cent apart from tax exemptions. However, given the increase in the cost of raw materials and other input costs, the government can consider revising the price cap of Rs 45 lakh upwards.
The government needs to bring in more reforms in the home loan market in order to make investments in residential projects a lucrative proposition. The middle-income home buyer in India is still wary about value for money when it comes to investment in real estate. The enactment of the Real Estate (Regulation & Development) Act, 2016 has allayed the fear of homebuyers to a great extent by ensuring timely delivery of projects and placing the onus upon developers for poor quality of construction, amongst other measures.
The Union Budget 2020 will be an opportunity for the government to take certain measures to make the real estate sector financially more lucrative for homebuyers. The government can make an upward revision in the Rs 2 lakh tax rebate which is at present offered on home loans. Further deductions in personal taxation has the potential to boost consumer demand.
The government can at the same time consider lowering the interest rate on home loans which will ensure a rapid sell out of the inventory of residential projects and have its ripple effect felt in the commercial and retail segments. Further, the Central government can also consider a reduction in stamp duties for the home-buyer on every new unit that is booked. Attracting the middle-income home buyer to invest in real estate can greatly boost the overall economy of the country.
The Central government can also consider to revive Input Tax Credit, which had been withdrawn after reduction in rates of GST. Revival of the Input Tax Credit system can provide relief to developers and ensure boost in sales of projects.
The government has committed itself to the goal of Housing for All by 2022 in accordance with the vision of Prime Minister Narendra Modi. However, in order to achieve this goal, the government has to make drastic reforms in the real estate sector in order to attract first-time homebuyers. The Central government can consider to waive off 100 per cent interest on home loan as deduction for first-time home buyers.
Rental housing is a massive market and can be tapped by introduction of Model Tenancy Laws which were first announced by the finance minister in her full budget speech in July last year. The draft guidelines of the Model Tenancy Law should take into consideration the changing dynamics of rental patterns in the country, including co-living, co-habiting and co-working, which are concepts that have gradually made their presence strong in the context of the Indian real estate market over the past few years. Tax breaks or tax holidays could be considered as new policy initiatives for the rental housing market while the government can also consider revising house rent allowance rates upwards for the salaried class.