Have the government and the Reserve Bank of India (RBI) done enough to bail out the economy – and by implication real estate? After all, the realty industry remains one of the most precise bellwethers of the state of India’s economy.
While the country waits for the first vaccines to roll out, Union Budget 2021-22 presents several opportunities to give the sector a shot in the arm, too. Given that real estate contributes more than 8 percent to the Indian economy, it has justifiable expectations.
Multiple measures were announced in 2020 to beat the unprecedented impact of the COVID-19 pandemic on the overall economy and the real estate industry:
- The RBI’s massive repo rate cut of 140 bps (leading to the lowest home loan interest rates in over 15 years)
- A six-month moratorium on EMIs
- Restructuring of loans of real estate companies at the project level
- At the state level, stamp duty reductions in Maharashtra
- A liquidity boost to NHB
- The first real-time deployments of rescue capital from the SWAMIH fund
These measures were proactive and commendable, but, not surprisingly, given the depth of pain in the real estate sector, they were not enough. The housing industry needs focused measures to further bolster demand in 2021. This year, the demands go beyond the usual suspects of single-window clearance and industry status.
Affordable housing is very likely to get another booster shot. However, the budget also needs to focus on the larger market as more than ever before, homebuyers and investors need focused tax incentives to get mobilised. Also, as the government is aware, developers’ liquidity woes need to be alleviated to forestall further market mayhem.
Here’s the list of demands
Hike the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least Rs 5 lakh to generate healthier housing demand, most notably in affordable- and mid-housing segments.
Personal tax relief, either by tax rate reductions or amended tax slabs; the last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was in 2014 and an upward revision is long overdue.
GST waiver for under-construction homes – The present Goods and Services Tax (GST) rate on under-construction properties is 5 percent minus the ITC benefit for premium homes (>Rs 45 lakh) and 1 percent for affordable homes (<Rs 45 lakh).
Even a limited period waiver of GST will reduce overall property cost and thus push demand for under-construction homes, which have been slacking presently. Funds from buyers can aid developers towards project construction and lessen their dependence on financial institutions. The most-recent limited-period stamp duty cut in Maharashtra significantly boosted demand in both MMR and Pune.
More incentives for private sector investments in affordable housing – Despite the benefit of infrastructure status for this critically important segment, developers are unable to get funding from major banks and NBFCs at affordable cost. The profit margins for affordable housing projects continue to be extremely low.
Ease liquidity – The liquidity crunch has had a cascading impact across sectors, including real estate. Project delays – the biggest fallout of the cash crunch – have severely dampened buyer sentiments in the last two years. Developers need a rational capital flow to keep up the supply pipeline, especially for ready-to-move-in homes which are in the highest demand, healthy. Increased supply also helps to keep property prices range bound.
(Source: Moneycontrol)
