The year 2019 witnessed the launch of the country’s first REIT, opening up new avenues for investing in A-Grade commercial office spaces. The maximum pain was experienced by the residential real estate sector largely due to the NBFC debacle and the resultant liquidity squeeze, and the slow pace of recovery in sales affected by overall economic scenario. The government did come to the sector’s rescue to create an alternative investment fund worth Rs 25,000 crore for last-mile funding of stalled housing projects.
And if the sector was looking forward to stupendous year in 2020, it was not to be. The COVID-19 pandemic and associated lockdown brought real estate activity to a complete standstill. The government took several steps to bring back demand and inject liquidity into the cash-strapped sector.
Here’s a look at some key regulatory interventions in 2020 and what remains to be done to boost the real estate sector:
RBI initiatives
> Repo rate cut by 140 bps in 2020The government, through monetary policy intervention, decreased policy rates by 140 bps in the past 12 months. It ensured banks pass on the falling interest rates to homebuyers. After several years, the interest on housing loans fell below 7 percent which has been a big demand boost for residential sales
> Banks permitted to restructure loans of real estate companies at the project level
In August 2020, RBI further allowed a one-time restructuring of corporate and personal loans (including home loans). This allowed real estate developers including suppliers of raw materials to rest their debt and provide a fresh lease of life to service their debt prudently.
> Specific window provided to push back repayment
Developers were provided an additional year to repay lenders which is over and above one year already available, so this will help in the management of cash flows and reduce asset classification stress of Real Estate focused NBFCs. Further, a window of Rs. 50,000 crore under Targeted Long Term Repo Operations (TLTRO) was meant to provide incremental liquidity to NBFCs, MFIs which could be utilised for onward lending to the real estate sector.
> Rs 10,000 crore allotted to National Housing Bank
In August, the central bank decided to allot Rs 10,000 crore to National Housing Bank, which was meant to be a big relief for the real estate sector reeling under a liquidity crisis. It was meant to provide capital to housing finance companies and eventually provide major relief to developers battling liquidity issues in COVID-19 times.
Government initiatives
> Additional outlay of Rs 18,000 crore announced for Prime Minister Awas Yojana (PMAY Urban)This was meant to support the objective of Housing for All by 2022. The additional outlay was over and above the Rs 8,000 crore already spent this year.
> Differential between ready reckoner (circle rates) and market value for tax exemption doubled to 20 percent
This Diwali, the government announced an increase in the differential from 10 per cent to 20 per cent under Section 43CA of the Income Tax Act on sale of residential units valued at up to Rs 2 crore. Consequently, the buyers will be entitled to relief of up to 20 per cent under Section 56(2)(x) of the Act. The initiative is expected to benefit developers who are hardpressed to offload unsold inventories, especially in those locations where the current market prices are below the circle rate – a rate at which different levies such as stamp duty, registration fee and other taxes are computed and paid.
This limited period of relaxation will end on June 30, 2021.
> Investments of over Rs 13,200 crore approved under Swamih Fund and money deployed in 36 projects
This comes in as a relief to 87,000 homebuyers. The government’s Special Window for Affordable and Mid-Income Housing (SWAMIH) fund was set up in November last year to provide last-mile funding for stalled real estate projects by the government. SBI CAP is the fund manager of SWAMIH Fund.
> RERA timelines extended due to COVID-19
In May, government issues advisory asking real-estate regulators in states and union territories to extend by at least six months the deadline for completion of projects in the face of the coronavirus outbreak. The deadline for RERA projects that were registered or were to be completed by or on March 25 has been extended.
> Stamp duty on housing units cut to 2 percent from 5 percent by Maharashtra government
The cut is in effect until December 31, 2020, to boost the stagnant real estate market, hit by COVID-19. Stamp duty from January 1, 2021, until March 31, 2021, will be 3 percent. This has started showing results. Home sales volume in Mumbai stood at 9,301 units in November 2020 registering a whopping 67 percent year-on-year (YoY) rise over same month last year, boosted by stamp duty cut and festive period of Diwali. At 9,301 units registered in November 2020, the residential sector of Mumbai recorded the highest ever registrations in the month of November over the last nine years.
> Rental accommodation scheme announced for migrant workers and urban poor
This is meant to increase the availability of organised housing facilities. This will lead to decongestion of urban spaces by reducing unauthorised occupancy and encroachment and thus, facilitate better town planning. As many as 24 states and Union Territories have signed agreements with the central government for implementation of the affordable rental housing complexes (ARHC) scheme mooted by the Ministry of Housing and Urban Affairs during the novel coronavirus. The government is extending several incentives including free Floor Space Index (FSI), concessional project finance, free of cost trunk infrastructure facilities, among others to push participation in ARHC scheme for urban poor and migrants
> Rules that allow outsiders to buy urban, or non-agricultural land, in Jammu and Kashmir notified
Earlier, only ‘permanent’ residents and those with domicile certificates were permitted to buy such land. This will pave the way for any Indian citizen to buy land and property in Jammu and Kashmir. Outsiders will now be able to purchase urban, or non-agricultural land. Contract farming will also be permitted on agricultural land.
So, what more can be done now?
Real estate experts say most of these government and RBI measures announced this year were largely geared towards tackling supply and liquidity concerns. What the sector needs are measures that will bolster demand.
> Swamih Fund needs more capital allocation
To enhance liquidity, funds like Swamih will need to be continue and more capital is required to be allocated and/ or more such platforms should be formed to ensure larger number of Projects across Tier II and III towns are benefitted, says Piyush Gupta, managing director, Capital Markets & Investment Services at Colliers International India.
> External commercial borrowings (ECBs) with necessary checks needs to be permitted
Continuation of external commercial borrowings (ECB) proceeds as a permitted end use for affordable housing projects under the Current ECB Framework is a step in the right direction as this would encourage ECB inflows in the affordable housing sector. However, permitting utilisation of ECB proceeds for acquisition of land parcels for the development of affordable housing projects would really provide low cost liquidity to the business, says Gupta.
There is a need for going beyond affordable housing projects to provide flexibility to large projects in cities which are starved of liquidity.
> Selective subvention schemes need to be allowedSome of the measures the government should take include allowing selective subvention schemes for developers with good track record, says Anuj Puri, chairman, Anarock Property.
> GST needs to be waived off temporarilyWaiver of GST on homes for certain period may attract buyers as it will reduce overall property cost by at least 5% for premium homes priced above Rs 45 lakh, he says.
> Stamp duty needs to be cut in other states
Reduction in ready reckoner rates and stamp duty (just like in Maharashtra) may further attract prospective buyers.
> Tax benefits for homebuyers need to be increased
The government should also consider increasing tax benefits to homebuyers and also extend income limit under PMAY to boost demand, says Gupta.
The government should consider increasing the deduction for housing loan. Currently this stands at Rs. 200,000 per annum. This should be increased up to Rs. 400,000 for affordable apartments.
It may also look at removing the cap for claiming losses under House Property. The set-off of loss benefit currently has been capped at Rs. 200,000. The government could consider removing the cap as earlier to incentivise buyers to purchase more than one apartment and if required borrow and purchase, adds Gupta.
The government should consider extending the benefit under section 80EEA to avail additional Rs 150,000 interest deduction on home loans to existing homebuyers who have already availed home loans; first time homebuyers to include mid-segment as well and create a separate provision for deduction of ‘principal repayment’ on home loans, opines Samantak Das, Chief Economist and Head of Research & REIS India, JLL.
> Holding period for REIT needs to be cut; policy benefits must be provided to emerging sectorsThe government could also look at reducing the holding period of REITs for long-term capital gains. It should also allow 100 percent FDI in completed residential real estate projects through the automatic route, he says.
According to Gupta, among fiscal and policy level benefits to sunrise sector, all emerging sectors such as Data Centers which has tremendous potential for attracting investments could be given fiscal benefits like coming up with economic zones which could provide Income Tax, GST holidays. This could be in line with earlier SEZ or STPI which helped investments in office businesses over the past decade.
(Source: Moneycontrol)
