Housing Segment Expected More

Expectations ahead of the Union Budget are always high and the housing segment too had pinned high hopes on some positive announcements that could revive its sagging fortunes. But the Budget had nothing significant to offer; there was no bailout package or any news on how the crisis would be addressed. The real estate segment is reeling under liquidity crisis and low demand from home buyers.

The government, though, retained its focus on affordable housing by extending the tax holiday for builders developing houses under this project. The project approval deadline has been extended from March 31, 2020 to March 31, 2021, to claim the benefit.

The buyers under affordable housing will continue to get additional rebate on the interest component of the loan up to ₹1.50 lakh (₹2 lakh plus ₹1.50 lakh). Borrowers under this project will continue to get rebate of ₹3.50 lakh for houses priced below ₹45 lakh.

Would these two sops, one for builders and the other for home buyers, revive the segment? Unlikely. The Budget by and large failed to invigorate the real estate segment.

In a surprising announcement the government has created two options for individuals to choose for being taxed on the income. Under the first option, individuals can opt for deductions under the usual Income Tax sections such as Sec 80C and 24 for claiming tax benefits including principal component of up to ₹1.50 lakh and interest component of ₹2 lakh respectively (₹3.50 lakh under affordable housing). Under the second and newly introduced option individuals can forego all the tax benefits available under all Sections of the Income Tax Act and just pay taxes.

Worrisome

The second option is worrisome for the real estate segment because it may discourage home buyers since one of the major benefits for individuals was to get tax benefits that also had significant impact on the demand side for houses. Time will tell how individuals would understand these two options of taxation and which one would they choose. Further, the RBI presented its post-Budget monetary policy this week wherein the think-tank of the Monetary Policy Committee (MPC) decided to hold the repo rate at 5.15%. This is the rate at which banks borrow funds from RBI to meet short-term fund shortages.

Considering the huge spike in inflation levels in the last couple of months and subdued economic growth, the announcement was on expected lines. The RBI continues to be ‘accommodative’, raising hopes of rate cut possibilities in the coming months.

The RBI also decided to infuse more liquidity into the banking system thereby enabling lenders to be able to lend freely. With better liquidity the home loan rates would continue to be at the present levels or may even be reduced for the benefit of borrowers. Once the economy gets into the path of recovery, the rates would resume their downward journey, but such recovery may not happen anytime soon.