Beyond the oft-repeated budget expectations of real estate stakeholders and the home buyers, Union Budget 2022-23 has an altogether different challenge. It’s not about just encouraging the new home buying but the fiscal policy needs to pave a roadmap to prevent distress sales as well. Track2Realty looks into upcoming budget in the wake of buyers’ job losses and salary cuts.
As I was watching the leading voices of the Indian real estate parroting their oft-repeated demands ahead of the Union Budget 2022-23, a home buyer had an interesting discussion with me. The buyer, with limited understanding of the Union Budget and difference between the fiscal policy and monetary policy, could still touch upon the real pain points of the housing market that is nowhere in the industry narrative.
He wished to know whether all the industry demands like Income Tax exemption or Long-Term Capital Gain Tax that are supposedly meant for the home buyers, are in sync with the post-Covid ground realities. Aren’t these meant for those who are already privileged to be in a position to buy a house or two?
Well, as a balanced view I first assured the home buyer that I can see some shift in the industry budget expectations this time around. The developers are more realistic and seem to have learnt to live with the need to bridge the gaps in wants & needs. As a result, demands like the Industry Status, Single Window Clearance, Ease of Project Finance etc are not as loud as the limit of Tax Deduction given to home loan borrowers to be increased to INR 5 lakh. The developers also want a review of the definition of Affordable Housing, lower Long-Term Capital Gains Tax to encourage more investment, and new provisioning for Rental Housing schemes.
The buyer confronted me with the direct question: But how can an average salaried class dare to buy a house in today’s uncertain economic outlook and shaky job market? Honestly, I had no straight answer to this. The experience of many of the home buyers post Covid suggests this is indeed the key issue today. A number of distress sales in the secondary market after job losses and salary cuts has made the end user buyers very apprehensive.
The industry data of faster recovery and record home sales conceal more than it intends to reveal. The rosy outlook fails to address the fact that this is a K-shaped recovery where a handful of large developers with sound financials have grown at the cost of the large universe of the developers. More importantly, the sales registration data doesn’t differentiate between primary market sale and distress sale in the secondary market.
The critical issue today is how the Union Budget 2022-23 could fix this insecurity in the minds of the home buyers. Exemption of Income Tax limits to INR 5 lakh or GST & Stamp Duty incentives are only going to attract a miniscule number of well-to-do buyers who are immune to prolonged spell of slowdown or recession. So is the reality if the Union Budget incentivises the home buyers with lower Rate of Interest, Capital Gains Tax or the Second Home purchase. These are the tried & tested incentives that only work in a growing economy.
Job growth, or rather lack of it, has to be addressed in the upcoming Union Budget if the fiscal policy intends to revitalise the housing market. What the home buyers want today in an uncertain economy and insecure job market is some sort of sovereign guarantee against future financial uncertainties. A number of economists I have spoken to maintain that the government and the lending institutions failed to see the larger picture in the wake of Covid. Had they addressed the issue of home buyers’ job losses and salary cuts, they would have served well to the business at large.
And hence, many believe Union Budget 2022-23 must come out with some out of the box thinking to reassure the aspiring home buyers. Two critical issues that most of the home buyers today feel the budget must accommodate is safety valve against job losses and salary cuts. If only the Union Budget makes a policy announcement to defer the home loan repayment in the wake of job losses and EMI restructuring in the wake of salary cuts, this could be truly called a home buyers’ budget.
Mind you! Loan deferment and restructuring would not only help the existing home buyers in distress but also act as a cushioning & sentiment booster for the prospective home buyers. This could serve well to the industry as well, since distress sale in the secondary market is a drag on the primary market inventory as well.
Subvention schemes proved to be counter-productive for the housing market in general and the home buyers in particular. Now that the builders are asking for the restoration of the same in their budget expectations, the home buyers should be wary of it. Right? The home buyers, on the contrary, feel subvention schemes would rather encourage them to buy Under Construction property, if it comes with the riders and there is a banking mechanism to penalise the builders and not buyers, in the wake of non-delivery.
Similarly, the sector is reeling with liquidity issues and the home buyers are only interested in Ready to Move properties. Not many developers are financially liquidated for the Build & Sell Model. The GST on the Under Construction and not Ready to Move property is proving to be counter-productive for the financial viability of the projects. If the chargeable GST is reversed, it could make some concessions for buying an Under Construction house. The home buyers maintain that in a market where the appreciation is nowhere in sight they have no incentive to buy an Under Construction property.
Another demand of the home buyers is to introduce a separate section under Income Tax 80C for the deduction of 1.5 lakhs from home loan principal repayments. Most of the middle class taxpayers generally exhaust their rebates on investments like PF, PPF and life insurance, limiting their eligibility to claim tax benefits on loan principal payments.
Amidst all the demands and expectations with the Union Budget 2022-23, one fundamental concern of the home buyers is whether the budget could address their job insecurity issues. Can the fiscal policy at least give them elbow room to avoid future distress sale and suffer huge financial losses in the process. That would define the home buyers’ psyche with the life’s costliest purchase.
Ravi Sinha
@RaviTrack2Media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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